It’s an indisputable fact that there has been an explosive increase in the diffe
ID: 392697 • Letter: I
Question
It’s an indisputable fact that there has been an explosive increase in the difference between the average U.S. worker’s income and those of senior executives. In 1980 the average CEO made 42 times the average blue-collar worker’s pay. In 1990 it was 85 times. In early 2000’s it had risen to 531 times. In 2008 it was still rising but the severe recession of 2009 reduced the difference and after has generated some serious questions about executive compensation but gap is back to enlarging since 2014. What are the implications of executive compensation for motivation of the general workforce in organizations? For Executives?
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Explanation / Answer
The rising executive compensation and widening gap between the compensation paid to the executives and general work force has many implications. The first implication w.r.t. the general workforce is that it brings negative motivation to the general workforce as they think that they do the hard work and high compensation is paid to the top executives. It makes the management to increase the compensation, rewards and other benefits paid to the general workforce so that they remain motivated. The second implication is that general workforce can create union and can come together to demand for the different benefits, facilities and other amenities. Not doing so, will create conflict, spread negative rumors and demotivate the employees. So, productivity will also decrease with lowering motivation. The third implication is the widening communication gap as general workforce finds top executives responsible for all their concerns.
Though, there are positive implications for the top executives if higher compensation is paid to them. It brings the elimination of agency conflict and executives can focus more on the organizational goals and work for the best of the organization. Besides, moral hazard problem is also resolved, as compensation paid to them, are linked to organizational performance.
Hence, the organization has to carefully design policies regarding the compensation and remain transparent for the higher compensation paid to the executives.
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