Pfizer Executive Compensation, Essay Example

Abstract

The power vested in the executive positions of a company accrues immense benefits to the holder of the seat. Because of the huge power vested, it has been observed that some executive officers have engaged in practices that are tantamount to abuse of office. By virtue of their resource endowment, such directors are capable of commanding huge salaries even at the backdrop of falling sales revenues and profits. In order to curtail such instances, it is imperative to place measures in place to subdue any efforts by the directors to benefit unfairly.

Introduction

In most companies, shareholders have a vote in most of the decisions to be made except for decisions relating to the remuneration of the directors. As a result, directors have in the past, awarded themselves hefty salaries and benefits despite declining revenues and profits. As a strategy towards corporate governance principles, shareholders have a vote on certain models of compensation to the management of the company, especially in relation to stock options (Argenti & Barnes, 2009). The influence of the shareholders is annual since voting occurs during the AGM. However, other companies employ the services of consultants who base their findings on factors motivated by the need to keep the executives happy and thereby remain assured of future consultations.

A scenario where shareholders push for a process where they are involved in the setting of the limits for the compensation of CEOs is referred to as ‘say-on-pay’. This form of compensation classifies as pay incentive compensation, which is calibrated according to performance (Berger & Berger, 2008).  Pfizer Inc., the world leading drug manufacturer has in recent past, revised the compensation program for executive directors to cater for the interests of the shareholders in addition to aligning it to their pay for performance philosophy. Earlier, the CEO’s long-term and short-term compensation was calibrated by the compensation committee (http://media.pfizer.com).

As suggested by Charan (2009), the main aim of such a move is to ensure long-term productivity of organizations as opposed to short-term profitability. This is so because the directors have to set and achieve exemplary objectives in order to receive the attractive pays appended therein. Without such performance, shareholders will have a say whether the directors deserve and how much they deserve for the posted performance (Pozen & Shiller, 2009). The market meltdown had its part to play in the performance of companies.

In order for shareholders to cushion themselves against losses, shareholders have moved in to retain the final word on what the directors get depending on the current financial status as posited by Berger & Berger (2008). The transparency in the compensation emanating from a say –on –pay agreement is commendable. Shareholders are able to appreciate and determine how their funds are being utilized. Similarly, shareholders will see to it that the managers pay is commensurate with the organizations goals as postulated by Charan (2009).

Similarly, CEOs append huge compensation packages to themselves as a means of fending off mergers and acquisitions. Golden Parachutes are characteristic of some CEOs pay terms, thus making it uneconomical for another company to proceed with a take over. By so doing, the directors’ main aim is to protect their jobs in addition to the shareholders interests (Monks & Minow, 2008). However, some mergers are potentially beneficial to the company, in which case the severance pack ages apply to serve the interests of the CEO.

A say-on-pay deal is also aimed at reducing the wealth gap through fairer distribution of resources among all employees (Berger & Berger, 2008). Carroll observed that in some organizations, the CEO earns over 400 times the salary of some employees of the company. Such a scenario is capable of breeding ideologies among the employees and thus leading to actions detrimental to performance of the organization (Falaschetti, 2009).

The economic crisis was a major awakening factor regarding corporate governance. The actions of the top management were put at the limelight, with emphasis on their conduct as a product of the immense power vested owing to their positions. It was evident that most CEOs collect huge paychecks at the expense of returns to investment as outlined by Argenti & Barnes, (2009). While for some organization it was mandatory, some did it as a sign of good will and a gesture of corporate governance as was in the case of Aflac Corporation (Carroll, & Buchholtz, 2008).

Conclusion

Shareholders have a right to protect their investment from unscrupulous individuals. The responsibilities of the directors are to invest the shareholders funds in the most viable options and thus their compensation should be based on the outcome of their decisions. In addition to other measures against the performance of the directors, the pay structure should be commensurate with the profitability of the company.

References

Argenti, P,. A & Barnes, C., M. (2009). Digital Strategies for Powerful Corporate Communications. US: McGraw Hill Professional

Berger, L., A & Berger, D. (2008). The Compensation Handbook Compensation Handbook. US: McGraw Hill Professional

Carroll, A., B & Buchholtz, A., K. (2008) Business and Society: Ethics and Stakeholder Management. Ohio: Cengage Learning

Charan, R. (2009). Owning Up: The 14 Questions Every Board Member Needs to Ask. California: John Wiley and Sons

Falaschetti, D. (2009). Democratic Governance and Economic Performance: How Accountability Can Go Too Far in Politics, Law, and Business. Florida: Springer http://media.pfizer.com/files/corporate_citizenship/cr_report/governance.pdf

Monks, R., A & Minow, N. (2008). Corporate Governance. New Jersey: John Wiley and Sons

Pozen, R & Shiller, R., J (2009). Too Big to Save How to Fix the U.S. Financial System. New Jersey: John Wiley and Sons