Discuss the issue of whether or not executive compensation is too high and how the major provisions of the Dodd–Frank Act affect the issue.

Question

What will be an ideal response?

Answer 1

There is no doubt that in some cases, executive compensation has gotten out of control. However, research shows that overall executive pay only runs about 4 times the pay of an average employee in most firms, which means that as a general rule, executive pay is probably not out of line, considering the pressure on executives to perform at the highest level all the time.
Dodd–Frank requires that shareholders be allowed a “say on pay,” where they vote on executive compensation packages at least once every 3 years. Shareholders also have a vote on “golden parachute” payments to executives who are forced out of the company because of a merger or acquisition, and every public company is required to disclose the total compensation of the CEO and provide a ratio of CEO pay to the average pay in the company. Finally, all public companies are required to provide information on executive compensation compared to the company’s total shareholder returns every year to allow shareholders to evaluate the performance of companies in which they own stock.