Question

Critics have charged that compensation to top managers in the United States is simply too high and should be cut back. For example, a recent Forbessurveys showing the 2012 annual compensation for the top 10 CEOs is attached. Are such amounts excessive? In answering this, it might be helpful to recognize that superstar athletes such as Peyton Manning, A-Rod, Tiger Woods or Lebron James, top entertainers such as Oprah Winfrey and Tom Hanks and many others at the top of their respective fields earn at least as much, if not a great deal more.

Forbes Rank of Top CEO Compensation - 2012

Rank	Name	Company	1-Year Pay ($mil)	5 Year Pay ($mil)	Shares Owned ($mil)	Age
1	John H Hammergren	McKesson	131.19	285.02	51.9	53
2	Ralph Lauren	Ralph Lauren	66.65	204.06	5,010.4	72
3	Michael D Fascitelli	Vornado Realty	64.405	-	171.7	55
4	Richard D Kinder	Kinder Morgan	60.94	60.94	8,582.3	67
5	David M Cote	Honeywell	55.79	96.11	21.5	59
6	George Paz	Express Scripts	51.525	100.21	47.3	57
7	Jeffery H Boyd	Priceline.com	50.185	90.3	128.2	55
8	Stephen J Hemsley	UnitedHealth Group	48.835	169.3	155.8	59
9	Clarence P Cazalot Jr	Marathon Oil	43.71	67.23	30.3	61
10	John C Martin	Gilead Sciences	43.19	214.92	90.9	60

Answer 1

We must all know that similar to any other commodity, there also exists a market for the top executives. The compensation of the top executive is an issue which really concerns the labor market. How much is too much? Who is worth more, Larry Ellsion or Tiger Woods? The simplest answer is that there is a market for executives just as there is for all types of labor. Executive compensation is the price that clears the market. The same is true for athletes and performers. Having said that, one aspect of executive compensation deserves comment. A primary reason executive compensation has grown so dramatically is that companies have increasingly moved to stock-based compensation. Such movement is obviously consistent with the attempt to better align stockholder and management interests. In recent years, stock prices have soared, so management has cleaned up. It is sometimes argued that much of this reward is simply due to rising stock prices in general, not managerial performance. Perhaps in the future, executive compensation will be designed to reward only differential performance, i.e., stock price increases in excess of general market increases.