Question

The CEOs of FTSE 100 companies in the United Kingdom (UK) earn on average 120 times the median total salary of full-time employees, taking home £3,450,000. As a consequence, there should be a cap on CEO remuneration.

(a) Crtically analyse the advantages of fixing the CEO remuneration from the perspectives of shareholders and employees. There should be minimum SIX (6) main points in your discussions.

(b) Crtically analyse the disadvantages of fixing the CEO remuneration from the perspective of CEO and company performance. There should be minimum SIX (6) main points in your discussions.

Answer 1

A) The advantage of fixing the CEO renumeration are:

1. Fixed cash outflow help n cash flow management

2. Avoid excessive slary

3. Helps prevent fraud as ar earning not impacted by this

4. Will remove focus from short term gains to long term gains

5. Focus on stakeholder views & general growth of company

B) The disadvantage of fixing the CEO renumeration are:

1. No incentive for better performance

2. No penalization for poor performance

3. No yard stick for performance as motivation

4. Will not encourage new ideas & innovation

5. Will not encourage new growth prosects