Are Compensation Plans For Private Sector CEOs In North America Reasonable?

Are Compensation plans for private sector CEOs in North America reasonable?
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Are Compensation plans for private sector CEOs in North America reasonable?
For many years, the question of whether Chief Executive Officers (CEOs) of major corporations in North America are overpaid has been an issue of great interest. In the last few years, the amount of bonuses and salaries that senior executives on Wall Street are paid every year has been in the news a lot, and the debate regarding levels of compensation for them has not showed any indications of subsiding. For many people, of particular interest is whether the government should regulate the pay for CEOs (Holmberg & Schmitt, 2014). This argumentative essay argues against the statement: Compensation plans for private sector CEOs in North America are reasonable?
The CEOs of many large firms in North America are generally overpaid. The compensation plans for these elite women and men are unfair, inappropriate and unreasonable. Crystal (2016) pointed out that in today’s age of ruthless cost-cutting and job losses across many organizations in the private sector, the salaries of CEOs in the United States and Canada are astronomically unreasonable. Chief executive officers do not just make lots of money in terms of raw numbers, but these individuals make lots of money compared with the workers outside the executive suite. Researchers have reported that the pay of chief executive officers compared with the pay of the average staff member has gone up over the last few decades from a level of 30 to 1 in the year 1970 to a level of 120 to 1 in 2000 and 347 to 1 today (Arenson, 2016). This is perpetuating the wage gap in North America between the haves and the have-nots, and it is clearly not reasonable. Furthermore, the financial services sector CEOs are paid more than the CEOs of non-financial services firms (Holmberg & Schmitt, 2014).
The pay for CEOs in North America, especially in Canada and the United States, is a lot higher compared to the pay for CEOs in similar-sized firms in Japan and Continental Europe. For example, the pay for Chevron’s CEO John Watson in 2012 was $18.1 million, which was a lot more than the $3 million earned by Christophe de Margerie who is the CEO of Total S.A, the French oil giant (Yglesias, 2013). In Canada, the Canadian Centre for Policy Alternatives reported that in the year 2015, the top 100 highest paid chief executive officers countrywide made $9.5 million on average annually (Kiladze, 2017). This pay was 193 times larger than the wage of the average industrial worker in Canada and was an increase of 30 percent from the year 2008 when the global financial crisis began (Kiladze, 2017).
Tom Hofstedter, the CEO of H&R REIT in Canada won the corporate governance lottery in 2016 when he along with his fellow executives were rewarded a batch of very lucrative stock options by the company’s board of directors, over and above the almost $80-million worth of stocks that he had already (Arenson, 2016). It is notable that in an ideal world, board members usually grant options at idealistic future prices as a way of rewarding the company’s senior executives for increasing the equity value of the firm. However, the board members of H&R granted their CEO practically at-the-money, meaning that he could utilize them in purchasing shares almost as soon as he got them. In addition, the timing was designed to occur in late February when the stock of the company plunged to its lowest level in roughly 6 years (Arenson, 2016). The stock rebound quickly and by the year ending, the total options package for 5 top executives was worth an estimated $22 million. The take for the chief executive officer was $11.8 million, which was really not a bad yearly bonus, particularly when one considers the company’s lackluster performance (Arenson, 2016).
Still in Canada, the board of directors of the aerospace corporation Bombardier in March 2016 had the audacity of paying its CEO and 5 other senior executives $32.6 million, a 1-year pay rise of about 50 percent, although the firm is currently a ward of the state (Kiladze, 2017). In America, Westinghouse Electric awarded its previous CEO and chairman $19 million in May 2016, just before the firm filed for bankruptcy (Crystal, 2016). Pay packages and compensation plans for CEOs are often very personal and serve as a measure of self worth, and most investors do not even know the amount of money that their CEOs are paid. This is because pay disclosure is very complex to navigate, with the truly egregious details such as departure packages and one-time bonuses usually hidden in dense footnotes. In both America and Canada, CEOs of firms in the financial services sector are some of the most unreasonably-paid CEOs. In 2012, Gordon Nixon of Royal Bank of Canada was paid $12.6 million, Richard Waugh of Ban...