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Do you think the pay of top executives should be capped

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Do you think the pay of top executives should be capped? It is debatable whether or the pay of top executives should be capped. It has become apparent that within the last few weeks, the economy has entered a great financial struggle has created controversy as to whether the salaries of top executives should be capped. Financial gains are to be formed from doing so The Chief Executive Office of Lehman Brothers, Richard Fuld, has admittedly earned approximately $250 million while working at the bank (the accused pay is double this). This extortionate pay raises the question: are they really worth it? It appears that they have made executive decisions that are bad for the long term (causing the company to enter administration), only to be rewarded with large salaries and bonuses. This makes a clear point that without any regulation on the level of pay that any executive may receive, this kind of problem will always exist. Arguably, this can be justified using the Lehman Brothers previous annual reports (each of the values below is in terms of millions of dollars): Financial Information 2007 2006 ...read more.


However they may also be elastic depending on whether they have the mobility to work internationally if they encompass the necessary communication skills (such as good English), so they may make the choice to migrate to markets where this pay ceiling does not exist. It would then additionally weaken attempts to attract CEO's from elsewhere as they would too rather move to markets where they are not limited to the amount of pay they would earn. However, the salary caps are likely to completely ineffective if a limit is not imposed on bonuses. Companies easily have the ability to bypass any salary caps by paying the difference in bonuses. Bonus contracts are likely to be performance related and as such, well executed ones may force CEO's to work harder for the business in order to maintain their level of pay. A typical example of this would be Stuart Rose (CEO of Marks and Spencer). His total pay for last year was �2,032,000 including �1,050,000 in bonuses for 2006-2007. ...read more.


Pay caps can also be disadvantageous to the firm in the event that they cause de-motivation. Some of the world's top Chief Executive Officers may choose to immediately move to firms promising to provide greater benefits (such as Cars, Houses) and greater bonuses. As a direct result of this, the firm may lose out on the additional profit that would have been created by their CEO. For example, if the CEO has created a constant increase of �100 million in profit, it may seem only fair to pay a small portion of this to their CEO. Currently, high executive pay has beaconed further debate with the Banking industry. It has emerged that a �50bn rescue package is expected to cause part nationalisation of all banks, but yet Gordon Brown refused to comment on whether or not a pay cap would be put in place. It would be disloyal to the tax payer if these pay caps are not put in place. However, as I have discussed above, these attempts may be unsuccessful if all parts of executive payments are not capped. Sources: Lehman News Article: http://english.aljazeera.net/news/americas/2008/10/20081062278398207.html Lehman Brothers Annual Reports: http://www.lehman.com/annual/2007/fin_highlights/ Marks and Spencer Directors Emoluments: http://annualreport.marksandspencer.com/governance/directors_emoluments.html ...read more.

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