Chief Executive Officers Compensation Essay Example | Topics and Well Written Essays - 2000 words

Chief Executive Officers Compensation - Essay Example The term human resource management is not new. It has been widely used by scholars and managers to refer to the set of policies designed to maximize organizational integration, employee commitment, flexibility and quality of work4. In the sections that follow, I will attempt each of the questions as requested and there after I will provide a brief conclusion. In economic literature, the significance of information asymmetries, innovation and strategic behaviour has long been recognised. There exists a considerable literature on how incentives affect a variety of management problems and the methodology for analysis of incentive problems most notably the principal agent model (Turner and Muller 2006). CEOs are paid based on the job description given to them and since in America it is often believe that, they are the leaders they want others to emulate. In addition, it always costs more to hire a new person than keep the old one. Osborne, Hyman & Jack (2006:451) substantiate further that an effective human resource policy "is not only to find competent workers but also to motivate and effectively manage them, is recognised as important for the viability of the organisation". They argued th They argued that, problems emanating from conflict of interest are virtually general to all cooperative activities amongst individuals whether or not they occur in a hierarchical fashion as suggested by the principal agent analogy Because principal and agents are utility maximisers, there is every reason to believe that the agent will not always act in the best interest of the principal (Jensen 2003:86). This attempts to draw out contractual problems that can arise as a result of agents acting opportunistically when their interest departs from those of their principal (Jensen 2003). Thus, agency theory provides us with the rational for an effective human resource management policy. Thus, if American CEOs are paid more than their Japanese counterpart, it is just their own way to handle the opportunistic behaviour of the agent. Hyman & Jack stated that Corporations in the States save twice that much every year from an even more outrageous loophole, what executive excess 2008 dubs the "unlimited tax deductibility of executive pay." Top companies can essentially