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Banker's Pay - Redesigning Compensation Pay

However, this is not an adequate solution as it neither gives the CEO a reason to give the job his full potential nor shows the shareholders a true review of how the CEO is performing. If he is paid a fixed amount then he is only accountable of performing to an expected level and nothing more. The shareholders will not have a transparent view of the company or the CEO as the company revenue is affected by several factors beyond the job performance. Any company's performance is affected external factors such as inflation, rent levels and other elements that influence the state of the economy. If the company performs well in great financial times it will be difficult to examine if this is due to the CEOs efforts or because of the general economy. Nonetheless is it vital to link the CEOs performance with the firms and base the pay on the performance of the firm in someway. This levels the interests of the shareholders and the CEO and introduces a positive incentive for the CEO. .
             Correspondingly to the conflict of interest are their differences in perception of risk. The shareholders have several other opportunities to obtain profits and can invest in a multitude of other companies. Often to gain maximum profit, which is the shareholders goal, high-risk projects must be undertaken and thus the shareholders are risk-neutral. Opposite of this do we have the CEO as he is personally accountable for the performance of the firm it is much safer for him to take less risks and hence he becomes risk averse. As of this the CEO must be incentivized to take on project of high risk and not only rewarded as of the company's performance. To conclude the issue it must be stated that the CEOs pay must be affected by the company's output as to incentivize him to put in best efforts, yet there must also be a certain fixed income to make the CEO more prone to risk. .
             Furthermore shall the distinction between the level and structure of pay be examined.


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