Describe How Executives Ensure Themselves High Compensation

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The Answer is Agency theory incorporates the political motivations that are an inevitable part of the corporate world.Sometimes, CEOs make decisions that are not in the economic best interest of the firm and its shareholders.One variant on this view suggests that the normal behavior of a CEO is self-protective.CEOs will make decisions to solidify their positions and to maximize the rewards they personally receive.As evidence of this self-motivated behavior, consider the following description of how executives ensure themselves high compensation:
1.If the CEO is truly underpaid: A compensation consultant is hired to survey actual competitors of the company.The consultant reports to the board of directors that the CEO is truly underpaid.Salary is increased to a competitive or higher level.
2.If the CEO is not underpaid and the company is doing well: A compensation consultant is hired.Specific companies are recommended to the consultant as appropriate for surveying.The companies tend to be selected because they are on the top end in terms of executive compensation.The consultant reports back to the board that its CEO appears to be underpaid.Salary is increased.
3.If the CEO is not underpaid and the company is doing poorly: A compensation consultant is hired.The CEO laments with the consultant that wages are so low for top management that there is a fear that good people will start leaving the company and going to competitors.The result is that the consultant recommends a wage increase to avoid future turnover.

Describe How Executives Ensure Themselves High Compensation

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