Aligning CEO Compensation with Performance and Accountability in Corporate

Governance

Institution

Course

Professor

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 Aligning CEO Compensation with Performance and Accountability in Corporate

Governance

1. Problem:

Corporate boards are lowering the instrumentalities between CEO performance and pay,

awarding bonuses to CEOs even when the company's financial performance falls short of goals

or when external factors hurt the company. This strategy may undermine executive

compensation accountability and fairness through discrepancy between company governance

norms and CEO pay.

2. Causes of the Problem:

The problem of easing CEO performance and compensation instrumentalities has

numerous causes. First, corporate boards may be reluctant to hold CEOs responsible for bad

financial outcomes due to a lack of responsibility, fearing it would damage their relationships

with senior executives. Second, CEOs' power over boards might make it hard for boards to

refuse CEO incentives, relaxing instrumentalities. The uneven use of loosened instrumentalities

might also cause executive pay inconsistency. Boards may prize short-term financial

achievements and CEO happiness above long-term sustainability, granting incentives without

performance alignment. Finally, insufficient shareholder and stakeholder control might worsen

the situation. To solve this issue, we must address these core reasons and take steps to increase

accountability, transparency, and CEO remuneration that matches business objectives. As

sustainability reporting improves and investors appreciate it, companies are connecting CEO pay

to sustainability success (Al-Shaer & Zaman, 2019).

3. Recommendations for Solving the Problem:

Several ideas may resolve looser instrumentalities between CEO performance and

remuneration. First, tougher governance standards that specify CEO performance assessment and

remuneration are needed to improve governance and transparency. Bonus awards should be

explained in depth and shown to match with business aims to increase pay transparency.

Accountability requires aligning remuneration with performance, and organizations should adopt

clawback measures to recoup incentives for mismanagement or misbehavior. Second,

independent compensation committees on the board may reduce CEO influence and ensure

neutrality in executive pay decisions. Long-term incentive programs may help CEOs prioritize

firm development and shareholder wealth. For more democracy and accountability, CEO

remuneration choices must include shareholder and stakeholder involvement. Reviewing

executive pay policies and flexible instrumentalities regularly helps identify opportunities for

improvement and ensure consistency with the company's aims and values. Shareholder

participation and voting rights help keep boards responsible for compensation choices.

Advocating for legislative and regulatory changes is another important step toward appropriate

CEO remuneration. Transparency of executive remuneration practices and choices is essential

for public accountability. Companies may balance and account for CEO salary by following

these guidelines, connecting it with performance and business goals while preserving fairness

and openness.

By addressing these causes and implementing the recommended solutions, companies

can strike a better balance between executive pay and performance while ensuring fairness and

accountability in compensation decisions.

 References

Al-Shaer, H., & Zaman, M. (2019). CEO compensation and sustainability reporting assurance:

Evidence from the UK. Journal of Business Ethics, 158, 233-252.