Theory Frameworks Analysis: CEO Compensation

Topics: Executive compensation, Corporate governance, Board of directors Pages: 7 (2226 words) Published: April 9, 2015
Theory Frameworks Analysis
Distributive Justice Theory – (1) each person is to have equal right to the most extensive scheme of equal basic liberties with a similar scheme of liberties for others. (2) Social and economic inequalities are to be arranged so that they are both reasonably expected to be to everyone's advantage and attached to positions and offices open to all. (1971:53) When discussing CEO compensation, the question that comes to mind will likely be, “is it fair?” This is the essence of the justice theory with distributive justice focusing on perceived fairness and inequalities arising from the allocation of rewards and costs. Although executive compensation may not seem extravagant if you are among the exclusive group of CEOs with similar salaries, to most Americans, the compensation packages appear to be downright ludicrous. After all, when putting Dimon’s compensation in terms of the federal minimum wage, Dimon made more in the first two hours of the first workday of 2013 than a minimum-wage worker made all year long—approximately $9,600. From 1993 to 2013, the income of the top 1 percent of U.S. taxpayers grew 86.1 percent, while the income of the other 99 percent grew only 6.6 percent. (Justin Fox, executive editor, New York, of the Harvard Business Review Group) JPMorgan headcount in 2011 totaled approximately 280,000 with headcount by end of 2014 estimated at 260,000. The bottom line is the Board’s decision to increase Dimon’s pay did not equally benefit all stakeholders despite the pay for performance incentive for which he is assessed Pay disparity between Dimon (those at the top) and other stakeholders (those at the bottom). Paid four times more in fines than dividends in 2013 ($5.4B in dividends). Shareholders took a direct hit from regulatory fines yet Dimon came out unscathed and rewarded—the Board praised Dimon for navigating the Company through regulatory difficulties. Since 2008, Banks have perpetuated the apparent pay inequality, utilizing taxpayer money to make risky investments without being held accountable when losses are realized Dimon pay increase amidst JPMorgan’s thinning workforce. Libertarian Theory: Determination and distribution of such compensation might not meet the standards of justice in acquisition and justice in transfer. All the libertarian tenets – individual responsibility, free and unfettered market transfer mechanisms, individual consumer liberty – cannot be meaningfully applied to questions of executive compensation. Libertarian Theory - Justice in acquisition and justice in transfer - Individual responsibility, free and unfettered market transfer mechanisms, and individual consumer liberty. Executives who use insider advantage to enrich themselves do not attain just entitlement. Pay disparity is not the objection, it is the process, which is less than fair and transparent Has Dimon been individually held responsible?

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CEO Compensation in the World

USA $13,300,000/yr
Canada $8,400,000/yr
Germany $5,900,000/yr
United Kingdom $3,800,000/yr
Japan $1,500,000/yr
*Average of 100 largest companies in each country

Canada - Canadian companies that saw their say-on-pay voting result decline by at least 10 per cent this year – including Barrick, which garnered just 15-per-cent support for its pay practices at its annual meeting in April – posted negative total shareholder returns in 2012. “We’re still only a few years into this whole say-on-pay mechanism, but there are patterns that are starting to evolve,” Mr. Gryglewicz said. This year’s say-on-pay survey is Global Governance’s third. Say-on-pay votes have been introduced in Canada over the past four years, and trends have been slowly emerging to explain when companies will most likely see shareholder support drop. Germany - German Corporate Governance Code was modified in 2009. The new law regulates compensation for members of stock...
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