Costs and Benefits of a Company's Executives
In a response to the below post, state whether you agree or disagree with the costs and benefits provided. What other costs or benefits do you think are associated with this type of compensation? What additional audit procedures do you think are most effective in detecting abuse or fraud related to executive compensation?
The SEC requires all public companies to disclose how much they pay their executives. This information can be found in the SEC public filings. Executive compensation is a topic of conversation and I decided to investigate a popular public company, The Home Depot. Employees of the Home Depot range from associate to kitchen designer and the compensation ranges to match the job from $11 an hour to $30 per hour. For example, in the State of Maine, salary ranges from $20,064 per year for an associate to $31,937 for an attendant. Designers, Sales Consultants, and Field Technicians would be the higher-paying positions ranging from $64,000 to $95,000 annually. In October 2020, Ted Decker was appointed CEO of Home Depot with a compensation of 9.4% in salary and 90.6% in bonuses totaling a yearly compensation of $14.62 million. He owns .01% of the company’s shares worth $29.11 million. Ted Decker is the CEO and a member of the board of directors “under Ted’s leadership, The Home Depot is creating a seamless interconnected shopping experience for Pro and DIY customers while championing the company’s unique culture” (Home Depot 2023). The Home Depot median worker pay is $30,100 giving the company a pay ratio of 491:1. I should say that executives are worth their salaries because they manage and ensure operations for the employees. In my opinion, CEOs are compensated because of their bargaining power, not their skills. CEO compensation has outpaced the average employee but not because they work harder or deserve it more. Executive compensation compared to an employee's salary does depend on the company and industry but is still outrageous. CEO salaries can average 136 times the average employee salary. Giving executives stock options as compensation gives the executives a personal incentive to increase the company’s performance. Some companies give their employees stock options for the same reasons, a low-cost way to compensate and motivate.
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I agree with the costs and benefits discussed by my colleague for the higher compensation of executives. In particular, executives deserve high salaries since they facilitate seamless daily operations. Without these leaders being there to make crucial decisions, employees cannot work on their own. Chief executive officers (CEOs) have more bargaining power and they ensure that a company has adequate resources to enhance productivity and profitability. They work together with other departments to oversee that potential problems are addressed before they interrupt a firm’s daily operations.
The CEO-to-employee pay gap is broadening. Notably, in 2021, CEOs earned 254 times more than average workers (Liu, 2022). Other benefits associated with CEOs' higher pay include motivating them to