Why Some Critics Believe The Executive Compensation System Needs Reform
In a recent article, Michael Skapinker of the Financial Times addresses the tension between executive compensation and its critics in “Executive pay: The battle to align risks and rewards.” He poses the following question: “Why do critics and shareholders object so strongly to the way top executives are rewarded?” Colin Melvin, chief executive of investment management firm Hermes EOS, believes that the way executives are paid has become overly complex, causing them to struggle to understand what is in their pay packages or how to hit their targets. “The system needs fundamental reform,” says Melvin. The following are some of Skapinker’s key takeaways:
- Some critics believe current compensation schemes encourage risk-taking and attract executives disposed to risky behavior.
- The average U.S. CEO earned 296 times as much as a typical U.S. worker in 2013.
- The SEC may soon act on plans to require companies to disclose the ratio between its CEO’s annual pay and that of its median-paid employee.