Question

If the goal of a corporation is to maximize shareholder wealth, the interests of the managers and the shareholders need to be aligned. The simplest way to align these interests is to structure compensation packages appropriately to encourage managers to act in the best interests of shareholders through stock and options awards.

Give your thoughts around executive compensation and the transparency of pay versus performance.

Answer 1

Executive compensation should be based upon the performance of these employees and they should be encouraging these employees in order to improve their performance so that they can be elevated to a better package.

The goal of the organisation is to maximize the wealth of the shareholder and the the employees are always strived to achieve their own personal goals so there is always a conflict of interest and the goals of employees are to be synchronised with the goal of the organisation in order to maximize the overall organisational value so the managers are needed to be paid with better compensation packages embedded with stock options and performance based payments so that will encourage them to achieve higher performance in order to maximize the overall value of organisation and help themselves by receiving better compensation.

Transparency of payment will be leading to motivation of various employees in order to improve their performance because these compensation will be based upon their performance and there would be an adequate transparency in organisation and various employees are aware about salaries of each other so they will be trying to motivate themself in order to achieve better performance so, their salary should also be increased and it would be needed to a higher performance index on the employees front leading to increase in the organisational value.