Where we were, Where we are, Where we going Essay Example for Free

Where we were, Where we argon, Where we going EssayIntroductionIn the latermath of study scandals and bail bulges in the fall in States, the worlds and the universes assumption in public corporations, has been shaken. With the tell scandals of Enron and other corporations in the United States, the faith in public corporations fell as fast as the bloodlinepile market. Investors had no confidence in corporations or in their rooms. Measures fatalityed to be taken to fashion regulations to provide stronger accountability, to pr until nowt these types of scandals from happening and to rebuild the confidence of investors. Corporate governance of publicly traded companies was no thirster an natural selection, it became a must. The public and the media demanded laws to protect hereafter investors and shareowners (Colley, Jr, Doyle, Logan, Stettinius, 2005). With most of the worlds financial markets in crisis and recession, the public has become much more(prenominal) awar e of bodily decision maker fee plans. Executive compensation has been an on-going retort for many years. There has been a great amount of controversy over how decision makers profit structure is intentional and who judges, oversees and determines administrators carry.As the scales get tipped on what administrators are getting paid versus employee standard wages, the public is ever on the watch for the next unified scandal. Boards are always challenged by what executives repair should be found off of this could be performance, industry standards or percentage of revenue. Boards admit to determine the base salary, values or unmindful term and long term options that testament be offered (Colley, Jr, Doyle, Logan, Stettinius, 2005).This typography will look at the former(prenominal) turn offs of executive compensation that lacked disclosure and transparence, current trends that are being used today in pay in the United States and Canada and future trends that should be used when it comes to executive compensation and executive pay methods. This paper will excessively give some recommendations that Canada should adopt.Past Trends in Executive CompensationFrom the original interruption of the New York Stock exchange in 1792 executive compensation (Bruvik Whitney Gibson, 2011, p. 74) existed. In the early 1900s stock options of stock awards, stock purchases, stock appreciation rights (cash bonuses) and freestanding dividend equivalents were formed (Bruvik Whitney Gibson, 2011) and still exist today. During this time executive compensation was very private and did non redeem transparency or regulations. It was not until the market crashed in 1913 that the public was becoming more aware of executive inflated wages, and compensation for executives. In 1933 Securities Act order was passed that required disclosure of stock sales to the public.Then came the introduction of laws that limited fringes (perks) this made executive compensation more rank(a) and created more awareness for the public. But in 1983 Ronald Regans administration dropped regulations and this changed the level of transparency once again and this would eventually lead to indiscretions in executive pay. This caused an artificial rise in stock market values and increase misuse of stock options thus the elevation of executives salaries. The United States Governments lower marginal tax to 33%, which changed the quality of management, because as long an executives increased shareholders wealth the salaries of executives had very little regulations (Bruvik Whitney Gibson, 2011).In 2001 the Enron scandal, executives inflated their earnings and overvalued their stock prices when they knew the company was going under. fourth-year executives cashed their stock options profiting while investor and employees of Enron lost everything. The numerous corporate scandals such as Enron, Jack rip off chief executive officer of General Electric, TYCO, and WorldCom creat ed distrust in public corporations and cost investors billions (Bruvik Whitney Gibson, 2011, p. 78). In order to increase confidence in public firms, a change was needed in regulations and legislation.This led to the Sarbanes Oxley Act (SOX) of 2002. SOX focused on corporate governance issues within a firm and led to rules of usage for boards of directors. Although SOX does not have mandates for executive compensation it does address how the compensation committee should be independent and how they should govern themselves. This has become very detailed legislation to aid in ethical practices in public corporation executive compensation (Bruvik Whitney Gibson, 2011). period Trends in Executive CompensationThe main foundation of executive compensation has not changed, it is designed to commit, inspire, prod and in the end retain the superior talent in the management world. In 2008 a regime fund TARP was created to purchase troubled assets from financial institutions (Bruvik W hitney Gibson, 2011, p. 79). TARP funds put restrictions on executive compensation by restricting paying out bonuses, limiting the Golden Parachutes, denial of benefits and used clawbacks if executive compensation was based on misleading statements (Bruvik Whitney Gibson, 2011). In order to receive TARP funding, firms have to practice the US mandatory Say on compensation which was implemented in January 2011.The United Kingdom has also implemented the Say on remuneration concept. The Say on Pay is a concept that shareholders should be given a nonbinding vote on board of directors recommendations on executive pay (Mangen Magnan, 2012, p. 86). Say on Pay concept increases shareholders activism within when it comes to the pay policies and practices (Geddes, n.d, p. 22). Current trends for public corporations for executive pay is to use polices and committees that structure the compensation.This pay should be transparent and increase the long-term shareholder value. Stock option inc entives should be restrictive, meaning they cannot be sold for a set amount of years or until after resignation. Corporations have still not restricted the pay of top executives and the total compensation is still quite elevated compared to that of the regular employee. A great number of firms feel that to retain good quality CEOs some pay incentives have to be competitive.Corporations feel that superior incentives for executives (and traders whose actions can substantially stupor an organization) to manage firms in investors longer-term interest (Romano Bhagat, 2009, p. 1). Corporations continue to struggle with the balance of reward based compensation that ensures future results and increases shareholders wealth in the short and long term (Colley, Jr, Doyle, Logan, Stettinius, 2005). Executive compensation packages will continue to need to be governed by compensation committees to hold the confidence of the public, shareholders and the market.How Canada Measures UpAs hold for thed earlier the United States on with United Kingdom has adopted the mandatory practice of Say on Pay which has increased shareholder involvement in the pay structure of their executives. Canada has not implemented this practice to be mandatory, even though it is, recommended as the best practices for firms. The five big banks in Canada have adopted the Say on Pay methodology (Mangen Magnan, 2012). In January 2012 the Huffington Post stated that Canadian CEOs are reluctant to discuss that executive compensation has got out of hand in Canada. The article discusses that executives incomes have continued to increase even though the wages of average Canadians have remained stationary.The article interviewed Fraser Institutes Niels Veldhuis and he stated When you annunciate for a policy that limits CEO pay what you are doing is youre signaling that were going to have even more regulations on how businesses operate here in Canada, and unfortunately, that will cause businesses to reloc ate or locate elsewhere (Mendleson, 2012). One could make the assumption that because Canada does not have the volume or the stableness that the United States does in the their corporations, that Canada is not implementing stronger regulations because of fear of losing what they have already and want to attract more corporations to Canada.At this time Canada uses a principles-based approach to governance in which standards are set and corporations are encouraged to wreak them. Compared to the United States that uses a rules-based approach that requires corporations to meet the practices and legislation (Milne, 2006). In Canada the Canadian Coalition for Good arrangement (CCGG) was formed to promote to good governance practices and recently the CCGG released the 2013 executive compensation principles. Corporations need to hold to the pastime principles 1. A significant component of executive compensation should be at risk and based on performance.2. Performance should be based on key business metrics that are aligned with corporate strategy and the period during which risks are being assumed. 3. Executives should build equity in the company to align their interests with those of shareholders. 4. A company may choose to offer pensions, benefits and severance and change-of-control entitlements. When such perquisites are offered, the company should ensure that the benefit entitlements are not excessive. 5. Compensation structure should be simple and easily understood by management, the board and shareholders.6. Boards and shareholders should actively engage with each other and consider each others perspective on executive compensation matters (Moncrieff, 2012). The principles above are the best practices for boards and corporations and are recognized to be the superior standards, nevertheless as of yet Canada does not rules or regulations to enforce these practices. The Canadian government at this point has no plan to put caps on executive compensation. At thi s point the Canadas tax laws are not in line with the compensation governance and reform is needed (Geddes, n.d).Future Trends for Executive CompensationCorporations, shareholders and boards are faced with meeting higher standards when it comes to executive compensation. This will mean adopting the Say on Pay and this trend is what is needed. Compensation committees must remain independent, transparent and must continue to ensure their programs attract, retain and motivate executive talent. Committees must ensure they are paying for performance that ensures long term profitability and value for two executives and shareholders (Stikeman Elliott, 2009).Recommendations for CanadaCanada needs to focus on moving towards rules and regulations and not principles and guidelines. Canada will need to reform their standards to be more unified with the rest of the worlds expectations. If Canada wants to attract more corporations to develop in Canada then they need to be the benchmark of standa rds and practices and set even higher rules and regulations to maintain level, of integrity.Executive compensation could become out of hand and it cannot just be the banks that maintain the higher standards. Canada needs to adopt the Say on Pay and make it mandatory and also move to regulations that are superior to SOX and align the tax laws to levels that keep up with executive compensation packages. Canada needs to embrace being the ethical governance leaders. ConclusionThere will always be unethical practices in executive compensation packages and it is not likely to decrease as long as there is competition and the need to retain talented CEOs, but Canadian businesses can set higher benchmark when it comes to corporate governance, executive compensation and our regulations and practices for boards of directors. We have to remain ethical, transparent and continue to disclose. This is the only way we are going maintain the public and shareholders confidence and continue to attract investors to invest.ReferencesBruvik, K., Whitney Gibson, J. (2011). The past, presentand future of executive compensation. Business Studies Journal, 3(1), pp. 69-83. Colley, Jr, J. L., Doyle, J. L., Logan, W. G., Stettinius, W. (2005). What is Corporate Goverance? New York, NY Mcgraw-Hill. Geddes, G. (n.d). Executive pay packages Compensation planning in light of increased scrutiny. Retrieved 02 08, 2013, from Gowlings http//www.gowlings.com/knowledgeCentre/publicationPDFs/Executive%20Pay%20Packages%20Compensation%20Planning.pdf Mangen, C., Magnan, M. (2012). Say on Pay A wolf in sheeps vesture? Academy Of Management Perspectives, 26(2), pp. 86-104. Mendleson, R. (2012, 01 04). Canada CEO Compensation Companies Hesitant To Debate Executive Pay. Retrieved 02 08, 2013, from The Huffington Post http//www.huffingtonpost.ca/2012/01/04/canada-ceo-compensation-companies-resist-debate_n_1183800.html Milne, J. A. (2006, May). Good corporate governance, good performance. Benefits Compen sation Digest, 43(5), 34-38. Moncrieff, J. (2012, December 18). CCGG Releases 2013 principles of executive compensation. Retrieved 02 08, 2013, from Canadian Securities Law http//www.canadiansecuritieslaw.com/2012/12/articles/corporate-governance/ccgg-releases-2013-principles-of-executive-compensation/ Romano, R., Bhagat, S. (2009). Reforming executive compensation concentrate and committing to the long-term. Faculty Scholarship Series. Stikeman Elliott. (2009). Topics and trends in executive compensation wealth accumulation analysis. Retrieved 02 08, 2013, from Canadian Securities Law http//www.canadiansecuritieslaw.com/2009/05/articles/continuous-timely-disclosure/topics-and-trends-in-executive-compensation-wealth-accumulation-analysis/