Corporate Governance and Executive Remuneration: A Detailed Report

This report delves into the contentious subject of executive remuneration, examining its correlation with company performance. It explores the perspectives of regulators, media, and the public. The report discusses the impact of agency theory on executive compensation, highlighting how managers might leverage company assets for personal gain. It investigates the link between executive pay and company performance, citing research on the subject. Furthermore, it identifies the factors that lead to organizations failing to align executive remuneration with company objectives, such as a lack of transparency, failure to reflect performance in compensation packages, and non-disclosure of executive remunerations in annual reports. The report concludes that robust corporate governance is essential in shaping executive compensation packages and emphasizes the importance of establishing clear regulations and guidelines. The report references several sources including studies by the Productivity commission of Australian government, CIMA, and research papers from various universities.

Corporate Governance and executive
remuneration

Introduction:
Executive remuneration was considered as
highly controversial subject which not only
attract the attention of the public, but also
attract the attention of the regulators, media,
etc. (Clarke & Branson, 2012). This paper
discusses relationship between the
compensation of executives and performance of
the company. Further it discusses the causes
because of which organization fails to align the
remuneration of executives with the objectives
of the company.

Executive Remuneration:
Productivity commission of Australian
government (2009) study stated that from the
period of 1990s to 2007, there was strong
growth in context of compensation paid to
executives and also occurrence of large
payments to the executives of the
organization, even though performance of the
company was poor, and this increase the
concern of the community that remunerations
paid to executives was not in control.

Agency theory & executive
remuneration:
Chances are present that managers of the
organization use the assets of the company
to enhance their own lifestyle. In other
words, executives grab the advantages of
control power for the purpose of satisfying
their personal needs such as using
expensive cars and personal trips on the
cost of organization

Executive Remuneration and Company Performance:
Generally, compensation packages of
executives include some necessary
requirements related to the company
performance, and relationship between
executive pay and performance of the
company is regulated by the executives of
the company. Numbers of researches are
conducted for the purpose of determining
whether there is actually a relationship
between the company performance and

Causes for organizations failure to align the executive remuneration:
There is no universal method which provides the way
through which remuneration package of he executives can
relate with the value and efforts of the organization. Various
researches stated that human resources and their
judgments play most important role, and there efforts can
be considered as quantitative measurements for the
purpose of designing proper risk adjusted pay systems.
The first and most important step for establishing the
reliability is to seek proper balance between the fixed and
variable elements of any plan. Following are causes because
of which organizations fails to align the executive
remuneration with the objectives of the company:

Continued….
• Organization does not provide recorded
salaries and bonuses to their employees.
• An annual change in the compensation
packages does not show any changes in
the performance of the company.
• Failure to disclose executive
remunerations in annual reports.

Conclusion:
After considering the above facts, it can be said
that proper governance in the executive
packages play important role, and it is necessary
for the management to frame proper regulations
and guidance for this purpose. There is no
universal method which provides the way
through which remuneration package of he
executives can relate with the value and efforts
of the organization. Various researches stated
that human resources and their judgments play
most important role in this context.

References:
• CIMA, (2010). Executive remuneration schemes and their alignment with business
sustainability. Available at:
https://www.cimaglobal.com/Documents/Thought_leadership_docs/CIMA%20Executive%20remu
neration%20schemes%20and%20sustainability.pdf
. Accessed on 13th March 2018.
• Clark, A. and Schor, E. (2008) Your Company is bankrupt, you keep $480m. Is that
fair?,Available at: http://www.guardian.co.uk/business/2008/oct/07/lehmanbrothers.banking.
Accessed on 13th March 2018.
• Clarke, T. and Branson, D. (2012) The SAGE Handbook of Corporate Governance, London:
SAGE.
• Indian experience (2008–2012). Available at:
https://iimb.ac.in/research/sites/default/files/WP%20No.%20426_0.pdf. Accessed on 13th March
2018.
• Modau, M. (2013). Relationship between CEO remuneration and financial performance of an
organization. Available at:
https://repository.up.ac.za/bitstream/handle/2263/40578/Modau_Relationship_2013.pdf;sequenc
e=1
. Accessed on 13th March 2018.