Some organizations structure executive compensation so that executives can receive amounts ranging from hundre

Question

Some organizations structure executive compensation so that executives can receive amounts ranging from hundreds of thousands of dollars to millions. Moreover, it's not uncommon for organizations to terminate or lay off large numbers of employees AND to give top executives big bonuses during the same year.

1. Can organizations justify high salaries while firing or laying off large numbers of employees?

2. What role does equity theory play in executive compensation and employees' perceptions of executives' pay?

Answer 1

I can answer your question partly.

Executive pay is often determined by Board Directors.  The Board represents the stock holders.  The board makes their determination on compensation based upon how well they expect the executive to do.  It's not unlike a professional sports team paying an athletic superstar in anticipation that they will knock in a great many home runs.

The Boards do this because they anticipate that the exec's performance will result in a performance that will benefit the stockholders (owners) of the corporation.   If he/she doesn't.  They get the boost.

Now...what are the perceptions of the employees?  Not too unlike the pro-player who is paid league minimum.  The difference is, the exec is earning his money through strategic and tactical leadership in taking the company to better and better profits.  The employee is fulfilling the role he/she has always had.

The employees perception is, we're all one big team...we all did it.  What makes the exec's role any more significant?