Financial managers and corporate officers are expected to possess the greatest personal and professional ethics, integrity and values, and show commitment to representing the long-term interest of the company and its shareholders. However, often, shareholders have sued these professionals for taking advantage of the company’s assets. These issues are primarily centered on executive compensation. However, I believe that the degree of the issue is much less than that which is speculated by both the public and media. This is because ever since the financial crisis, sensitivities around executive compensation have hardened over the decade, and as a result, companies have reviewed their compensation policies. Furthermore, it is essential to consider that in the increasingly competitive marketplace, corporations cannot afford to neglect their executive compensation packages. For some, the large salaries and lucrative severance packages are industry standards, as they are the only ways to retain top talent.
Although many companies link executive pay to performance based on variables, such as profit, income, and cash flow, the management issues lie with poor decisions and lack of ethical behavior. Since financial managers and corporate officers are part of the board participating in decision-making, they can easily find ways to embezzle funds. In some corporations, the bonus packages for senior officials are not tied to the organization’s performance and instead on past performance or retention. As a result, this leads to them giving much less emphasis to help the company generate revenues. Moreover, it will result in the “Dudley Paradox” in which the senior officials are a substantial bonus for hitting targets, even as the company suffers major losses. Therefore, in conclusion, large salaries and compensation packages are not an issue; however, there is evidence of poor decisions and unethical behavior that is tied to not linking remuneration with financial performance.