Thursday, April 02, 2015

EXECUTIVE COMPENSATION COMPARE IN ACROSS COUNTRIES

Executive Compensation:
Executive compensation packages consist normally of various components. In order to categorize executive compensation, several distinctions can be made. It is possible to distinguish between fixed and variable compensation, between compensation in cash and non-cash compensation and between deferred and immediate compensation.Fixed compensation comprises in the first place the salary of the executive which may be regarded as the basis of the compensation package. In addition, many companies grant their executives certain benefits and allowances in kind, including the private use of company cars, aircraft's, financial counselling and home security. Certain companies also provide for are imbursement for tax liabilities produced by other components and perquisites obtained by the CEO. The determination of fixed compensation is usually based on a “competitive bench marking” which employs a general salary survey and detailed analysis of specific industries or market peers (Murphy, 1999, p. 9).2 Variable compensation can be structured in a variety of ways and may be granted on an annual or a long term basis. Annual variable compensation is either accorded on a discretionary basis, or based on predefined performance criteria.3 Performance criteria can be based on individual, business unit or corporate performance and may include thresholds or ceilings limiting the amount of payment (Lynch and Perry, 2003). Criticism in some countries, for instance in the UK, has focused on the fact that the bonus targets remain frequently unpublished. Further, Bruce et al. (2007) find an increasingly complex structure of bonus targets which is linked to higher bonus pay but not to higher shareholder return.
EXECUTIVE COMPENSATION   COMPARE   IN ACROSS COUNTRIES
This section looks at executive pay in six countries where disclosure practices permit comparisons. The six countries in question cover a wide geographical scope. They are Australia; Germany; Hong-Kong, China; the Netherlands; South Africa; and the United States. For each of these countries, executive pay in the 15 largest companies is examined. The companies are selected on the basis of the “Forbes’ “Global 2000” ranking of 2008”.4 This helps to identify companies according to the same uniform for all the countries. As suggested by theory (Murphy (1999)) and established by empirical research in various countries, including in the US (Tosi et al 1998), Australia (Merhebi et al (2006)), Portugal (Fernandez 2008) France (Dardour 2008) and Germany (albeit with mixed results according to Haid and Yurtoglu (2006); Rang 2006), executive pay increases with company size. This implies that the level of executive pay in the 15 largest companies is likely to be higher than average executive pay for the economy as a whole. The purpose of the data provided here is not to furnish an all-embracing account of compensation practices but rather to provide a snapshot of developments in the countries concerned in order to show structural similarities, differences and common trends.5 Because of the above-mentioned methodological difficulties concerning the calculation of share-based remuneration, the comparisons are confined to pay components which do not depend directly on share values (i.e. salary and perquisites, bonuses and deferred compensation). On average, CEOs earn between $ 1.4 million and nearly $ 10.3 million per year (plus stock options), that is between 71 and 183 times the wage of the average worker Executive pay in 2007 for the 15 largest companies in the six selected countries is shown in Table 1. The best paid executives are in the United States. In that country, average CEO pay exceeds $ 10 million per year, that is about 183 times the wage of the average American worker. Executives in Hong-Kong, China and South Africa are paid much less than their US counterparts. However, even there, CEO pay represents between 54 and 148 times the wage of the average worker in the two countries.
Tab. 1:
 Average Compensation by employee category, 2007
 CEO Average Executive
USD Ratio of compensation per employee USD Ratio of compensation per employee Australia 6,001,060 135.3 2,415,012 54.5 Germany 6,796,643 147.8 3,767,554 81.9 Hong Kong (China) 2,723,425 160.2 1,075,757 63.3 Netherlands 3,578,286 71.4 2,171,016 43.3 South Africa 1,370,824 104.4 934,378 71.1 United States 10,309,701 182.6 6,297,870 111.5
It is important to note that these data provide an underestimate of the total remuneration of executives. Indeed shared-based compensation is not taken into account. A rough estimate based on available information suggests that the represent between 25 percent (in Germany) and 60 percent (in the United States). This rough appreciation illustrates that the total amount of executive compensation would be considerably higher if share-based compensation were taken into consideration. To a significant extent, executive pay depends, in principle, on individual and firm performance. In Australia, German, Hong-Kong, China and the United States, the variable component exceeds the fixed component. But even in the other two countries (the Netherlands and South Africa) the variable component is significant.
Ongoing policy debates on Executive Compensation
 In many countries proposals have been put forward with a view to mitigate the problems regarding executive compensation which have been illustrated by this study. Given the strong differences across countries regarding executive compensation, the proposals are highly country specific. A number of proposals deal with the institutional framework in which executive compensation is determined. Some of those proposals argue for an enhanced role of the shareholder meeting, usually referred to as “Say on Pay”. The focus of the debate in the United States is current on a non-binding vote of share-holders on executive compensation matters. While not providing shareholders with a veto on compensation packages, shareholders would have an institutionalized platform to express their disagreement with the remuneration policy of their company (Gopalan, 2007).24 Similarly, a recent proposal of the Austrian trade unions argues for the strengthening of information rights of the shareholders on executive compensation matters (Arbeitnehmerkammer Wien, 2008). Other proposals favour an enhancement of the committee in charge of determination of compensation. For instance, German trade unions argue for a stronger role of the German supervisory board and in particular for a more intensive participation of the employee representatives in the compensation determination process (German Trade Union Federation 2008). Certain proposals also deal with the amount and the criteria employed to fix executive compensation. Proposals from German and Austrian trade unions suggest that, when determining executive compensation, not only personal performance and firm performance but also other criteria such as social and environmental sustainability should be taken into account (German Trade Union Federation 2008 and Arbeitnehmerkammer Wien, 2008). A third group of proposals deals with a more rigid taxation of executive compensation. It is suggested that companies should no longer be able to deduct executive compensation as a business expense. According to these proposals, this would set a negative incentive for excessively high executive compensation by increasing the compensation costs of the company. Proposals along those lines have been put forward, among other, in the US and in Austria (Anderson et al. 2007 and Arbeitnehmerkammer Wien, 2008).

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