SHOULD TOP EXECUTIVES MAKE THE MONEY THEY DO?



Prepared for





Prepared by






April 4, 1997







CONTENTS

Abstract ........................................................................................................... iii
Introduction ..................................................................................................... 1
High Pay Seems Small When Compared To Company Profits .......................... 2
Top Executives Are Under A Lot Of Pressure .................................................. 3
US Executives Paid Three Times More Than Other Countries For A Reason .... 4
Pay Should Reflect Performance ...................................................................... 5
Conclusions And Recommendations ................................................................ 6
Notes ............................................................................................................. 8
Bibliography ................................................................................................... 9













ii
ABSTRACT
This report explores the issue of the pay that top executives make, and the reasons why
they do. It also suggests improvements that can be made to make the system better.

High Pay Seems Small When Compared To Company Profits

Many companies pull in profits that are extremely high. When an employee of such a
companies salary is compared to the amount of profit that the company earns, it starts to
seem reasonable. It only makes sense that if the employee is directly responsible for the
success of their company, then they deserve to get their payback. It seems ironic, but
many salaries even look small once compared with a companies profits.

Top Executives Are Under A Lot Of Pressure

Being the CEO of a company is not an easy job. There is all kinds of pressure for a person
in such a position to succeed. If they do not, then it is their job on the line. Therefore,
they deserve to receive a large sum of money for the work that they do. It is the only way
to compensate these employees for the tremendous strain that their job puts on them. It is
essential that the employees get paid the amount of money that they deserve.

Pay Should Reflect Performance

When CEOs are being given big paychecks, they are expected to perform at a high level.
There success is impeccable. However, this does not always happen. There should be
some way of connecting pay to job performance. The best way of doing this would be to
award bonuses to those workers who are at the top of their class. This would not only
motivate workers to do a good job, but also reward the employees that do succeed.


TOP EXECUTIVES DESERVE THE MONEY THAT THEY MAKE

INTRODUCTION

It is a well known fact that many people holding high positions in companies make an
exorbitant amount of money. Some, however, say that they do not deserve the amount
that they are paid. They feel that for the amount of work that is done by these executives,
their paycheck is simply too high. Also, they believe that these high paid workers often do
a mediocre job, while still managing to reap the benefits of being an executive. While
these are viable arguments against this issue, the other side of the spectrum shows that this
is not so. There is an equal amount of evidence, if not more, that suggests that executives
earn every penny of their paychecks.

The CEOs of companies are under an extraordinary amount of pressure. They face the
task of making sure that a company pulls in a profit, or possibly losing their job. There are
few, if any other positions that put an employee in this situation. Important decisions are
made by them everyday, many of which decide whether a company will prosper, or go
under. Many of these men had to work their way to the top. They usually have extensive
business backgrounds, and know their field well. There are very few people qualified, or
knowledgeable enough to perform well in executive positions. That makes the ones that
are, a hot commodity. Thus allowing them to demand the high pay that they earn.




High Pay Seems Small When Compared To Company Profits

When the public sees a salary that they consider to be too big, they are usually looking at
only half of the picture. It is impossible to look at just the salary, without taking any other
factors into consideration. One must look at the amount of earnings, compared to the
profits of the company.

For instance, Robert Allen, who runs ATT was recently pointed out by 60 Minutes as
being an overpaid executive. Their major problem was that he had been responsible for
laying off 40,000 employees, while still managing to give himself a large pay increase. At
first glance, this situation may appear to be one involving a greedy and overpaid executive.
However, upon closer examination, it proves to be much to the contrary. The situation
wherein the 40,000 employees were laid off, was not a matter of getting rid of people for
an unfounded reason. It