Executive Pay: Balancing Interests and Performance Analysis

This report examines the multifaceted issue of executive pay, presenting two contrasting viewpoints. The first perspective argues in favor of high executive compensation, emphasizing its role in attracting and retaining top talent, fostering good corporate governance, and incentivizing ethical behavior. It highlights how competitive pay can shield board members from corruption and align their interests with those of the shareholders. The second perspective critiques high executive pay, arguing that it can demotivate other employees, lead to agency problems, and prioritize short-term gains over sustainable business practices. This viewpoint emphasizes the potential for pay inequality to damage morale, the misuse of resources, and the detrimental effects on shareholder value. The report concludes by highlighting the need to balance the interests of various stakeholders and the importance of a nuanced approach to executive compensation that considers both performance and ethical considerations.

Running head: EXECUTIVE PAY 1
Executive pay
Student Name
Institution

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ARTICLE 1.
Satisfied board, satisfied stakeholders.
Money matters will never fail to raise eyebrows whenever that name is mentioned.
Executive pay usually refers to compensation that is accorded to top management of different
organizations all over the world. The executive pay is important as it is aimed at improving the
corporate governance of the organization. The remuneration is usually enjoyed by the board
members and other top officers who are answerable to the board. The pay usually consists of
financial and non-financial considerations. The executive pay is usually approved by the
shareholders during the annual general meeting by adopting the remuneration report. The
executive pay is different from salaries which are paid to the rest of the employees of the
organization as the expense is incurred on special occasions such as after conducting a meeting.
The executive pay is in the form of allowances and bonuses which are entitled to the top
management members after achieving a certain objective.
Avoid corruption
The best performing organizations all over the world have executive pay which is high
and which satisfies the board members. Board members are not entitled to monthly salaries like
the rest of the employees in the organization. This calls for the need to pay the executive
members handsomely so as to enable them to conduct their duties effectively. This will help to
avoid cases of top management being bribed in order to approve some decisions which are not
consistent with the values, mission, and vision of the organizations. The board members become
more committed to ensuring the organization succeeds as decisions are made with the best
interest of the firm in place. This will help to avoid biased decision which will not lead to

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maximizing the value of the shareholder but increasing the earnings of the board members. High
executive pay will help the board members to be shielded from corruption cases as their price
will be high and people who need favors will have to cough out large amounts of money which
are unrealistic and this will help the top management to act ethically and practice integrity and
honesty. This will help the firm to avoid legal fees for solving different cases involving the
company and third parties due to poor decisions made by the top management of the
organization. Corruption free organizations usually enjoy a good reputation and untainted public
image which can be used to improve the revenues of the business.
Talent acquisition in boardroom
High executive pay according to research by different scholars and institutions leads to
attraction and retention of top talents in the industry. The board should be well balanced in terms
of gender and experience. The top management should have experience in different aspects of
the organization for the firm to operate effectively. High compensation will attract good
corporate governance in the firm as experts in the industry are willing to take part in the board of
the firm and this will help to ensure a board that promotes gender equality and good corporate
governance. The executive compensation can also be in the form of shares or call options. This
type of compensation will encourage top management to act in the best interest of the firm so as
to gain more benefits from the sale of shares and executing the call options. National Australia
bank should, therefore, re-examine their decisions as they may be shooting down their golden
star.

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ARTICLE 2.
Boardrooms wasting valuable resources.
Executive pay is compensation that is given to top management for performing various
roles in the organization. The pay should be equivalent to the value of service rendered to the
institution, but some top management has been reported in various media outlet as being too
greedy. No one disputes that top management should be well compensated so that they can
perform their roles effectively. The problem is that the top management fixes their pay and then
use majority shareholders in order to adopt such enormous executive remuneration. Some board
members do not perform their duties well but at the end of the day, they pocket an unrealistic
amount of compensation for contributing nothing towards improving the performance of the
organization. The board members are compensated using resources which can be used to expand
and maximize the shareholders’ value and earnings.
No motivation
High executive pay can demotivate employees in the organization as there is the notion
that the staff work for the organization and yet they earn way much below what the top
management earns. Working with employees who are not well motivated will affect the
performance of the organization and lead to reduced efficiency in the firm. This will contribute
to poor reputation and bad public image as customers will not be satisfied. In this era of informed

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customers, which the company wants to have a poor public image? High pay can, therefore,
affect productivity in the organization which in return will result to poor quality products and
services which cannot satisfy the needs and preferences of the target customers because pay
inequality demotivates employees in various organizations.
Sustainability problems
Top salaries and bonuses in an organization should not be used as the only incentive to
motivate people in the firm because this is a sign of poor management in the organization. Poor
management is associated with poor corporate governance that does not respect gender equality
in the organization. This also translates to the fact that the organization will not engage in
sustainable business practices which can be used to motivate top management in the
organization. Sustainable business practices are long term objectives of the company but top
salaries to the top management of the company are short term remedies to management issues in
the company. The shareholders aim for long term incomes but companies with high executive
pay do not have such initiatives.
Agency problems
High executive pay will also lead to agency problems as top management in the
organization will award themselves high salaries and bonuses instead of investing the
shareholder's money in long term investments which will expand the shareholder value and
earnings. The shareholders will believe that their investment in the organization is not being
managed well and this may call for special annual general meetings to have a vote of no
confidence at the top management. This will disrupt the operations of the company and will also
affect the listed stock value leading to great losses. Such moves will scare away potential

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investors and the company will have limited sources of capital and this can lead to bankruptcy
and eventually firm dissolution. National Australia bank should, therefore, reject the
remuneration report with 100% of the shareholders.

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