At the moment, hygienists of IT businesses and other structures have huge incomes and can allow highly rewarding managers who lead a vast team of specialists to success. However, as it becomes clear, management work is not infinitely tricky, primarily if companies use modern information technology and artificial intelligence. The technology marketplace sometimes allows CEOs to guide their gut and rely on luck. Then a fair question arises about the correct distribution of the CEO’s salary. Excessively inflated compensation packages are sometimes the cause of the failure of internal control systems (Karim, Lee, and Suh, 2018, p. 34). It is proposed to introduce a strict and transparent system of taxes for such large incomes and a system of relations with shareholders that can be fair and uninterested in such a significant gap in wages.
The wage gap always risks exposing corporate financial fraud and corruption. The lack of transparency in the pay system, which, in the case of CEOs, is based on shareholder payments, can lead to accountants drafting fake payroll contracts. CEOs’ compensation packages are five parts: base pay; health and retirement benefits; fringe benefits; short-term incentives; and long-term incentives (Harris, Karl, and Lawrence, 2019, p. 10). Readers can see that accountants have a lot of room for shenanigans, which the board of directors is not always interested in noticing.
An example of corporate governance failure and an excessive compensation package for a CEO is the Enron case. The company had disinterested directors who set independent salaries for the CEO on paper and officially. In practice, however, the company quickly went bankrupt when the accounting department began to arrange financial fraud to profit from the top of the company. Senior employees were not interested in long-term contracts and entered into as many contracts as possible that could provide benefits in a short time. Greed harmed the directors and CEO, and the accountants went to jail after litigation.
One of the primary mechanisms for internal corporate governance is taxation. This method is notable for its simplicity, but it requires transparency (Monks and Minow, 2016). The CEO and other employees want to understand how much the tax is calculated and what is included. The tax will not reduce the symbolic wages for labor. CEOs will continue to receive millions, but after taxes are deducted, their salaries will be comparable in size to the compensations of other managers and their closest colleagues (Li and Kuo, 2017, p. 294). This method is considered fair since, at the moment, most CEOs receive a huge compensation package within the bureaucratic apparatus and not for the particular risks imposed on CEOs daily.
A special committee establishes the compensation package for the CEO, the board of directors, especially the shareholders. Sometimes shareholders, after dividing the company’s shares, can fix the amount of money invested in projects according to their preferences and desires. The board of directors and shareholders should be as disinterested as possible in the CEO compensation package (Buertey, et al., 2020, p. 267). There should be no agreement between these people; otherwise, corruption is a matter of time. Shareholder attention and outside shareholder involvement is the second example of a way to define a compensation package for a CEO.
The regulation of internal corporate governance will allow large companies to have a transparent system of relations between colleagues and monetary circulation. Internal corporate governance failures led to devastating corruption, as did Enron, after financial fraud. To determine the compensation package for the CEO, which already consists of benefits and covers a significant part of the average person’s needs, a transparent taxation system and disinterest of shareholders are required.
Reference List
Buertey, S., Sun, E.J., Lee, J.S. and Hwang, J., 2020. Corporate social responsibility and earnings management: The moderating effect of corporate governance mechanisms. Corporate Social Responsibility and Environmental Management, 27(1), pp.256-271. Web.
Harris, O., Karl, J.B. and Lawrence, E., 2019. CEO compensation and earnings management: Does gender really matters? Journal of Business Research, 98, pp.1-14. Web.
Karim, K., Lee, E. and Suh, S., 2018. Corporate social responsibility and CEO compensation structure. Advances in Accounting, 40, pp.27-41. Web.
Li, L. and Kuo, C.S., 2017. CEO equity compensation and earnings management: The role of growth opportunities. Finance Research Letters, 20, pp.289-295. Web.
Monks, R. and Minow, N., 2016. Corporate governance. 5th ed. Chichester, West Sussex, U.K.: John Wiley & Sons, pp.488-491.