Executive Compensation: How to Fix the Greed

American workers and government officials have lost patience with the celebrity CEO's that earn more money than most business owners, investors, sports players and prime ministers combined. Owners have become specifically concerned about the cost of executive compensation that has often left organizations even weaker up their "knights" departure then before the CEO arrived. With such abuse and short-sightedness in mind companies have begun to conjure up new magical compensation structures.

In the recent past Earnings Before Interest and Taxes (EBITA) and stock prices seemed to be the two major benchmarks in determining the worth of an CEO's. Executive compensation is often comprised of 20% from salary and bonuses while the other 80% is made up of long-term benefits. However most of this compensation is based in short-sighted company improvements that may actually leave companies hurting long into the future. Laying off employees, cutting out expenses, and manipulating stock prices are only some of the tools executives may use.

Executive salaries are often made up with a multitude of sources which include annual bonuses, long-term incentive pay, restructured stock awards, and stock options. Each of these compensation methods are detailed further below:

Annual Bonuses: Pay per performance models.

Long-term Incentives: Paying executives through a variety of methods based on long-term benchmarks.

Stock Awards: Awarding executives with additional stocks.

Stock Options: Executives can buy stock at a pre-defined price even if the stock moves higher.

Each of these various compensation methods above are usually put into a basket by which the executive gets paid from a multitude of sources. Because millions of dollars of compensation focus on short-term results the Obama administration recently put a cap of 500K on total compensation for any company receiving Federal "bail out" money. However, not all changes are prompted through the government. Some boards of directors want to see value changes which have led to the firm's value as being part of the compensation structure.

Employee compensation should be tied closely to a firm's value at different times of throughout their management reign. In addition, such compensation could be tied to a basked such as a firm's market value, stock performance, and long-term revenue projections. These measurements should be taken yearly for compensation and market analysis reasons. The other part of compensation could be based in salary and bonuses. The key is to improve the overall value and functioning of the business instead of short-term gains.