Business

Introduction
Considering the implications of an open market economy, the attainment of a swift corporate rule and attainment of goals must consider an equitable balancing of all the constraints both financial and policy decision making to generate strategies which function on the best interests of all the stake holders involved in the company. Salary scale settings should comply with the fundamental principles of transparency, integrity, objectivity, competence, due care and confidentiality (walker c. 2010). Executive employees receive various benefits exceeding their basic salaries like bonuses, perseverance  parachute allocations, high house and entertainment allowances, share allocation and many others.

A recent review addressing executive salaries in relation to the current economical clinch stated that it is the high time for management boards and country governments to enact measures to control salary allocation strategies to reduce the demeaning setbacks experienced in the big firms currently. He cited the case of Lehman brothers and the giant American insurance group (AIG) which is currently under control of the government. He said that huge executive salaries employed in their compensation decisions greatly influenced the ill functioning of both the entities. After stepping down, the then managing director of AIG received a huge chunk of over 47m USD. This allocation was in form of severance allowance. Mr. Sullivans pay helped contribute to the demise of the insurance giant.

The following provides some of the ethical considerations to be considered in preparing a compensation program to address setting of executive salaries

Provisions on the compensation program of the firms constitution
The compensation program should clearly state its objectives. The constitution must indicate the directors of the company as being actively involved in overlooking the program design and ensure that it operates within its mandate. The provisions on the program must not exceed its mandate (Jae 2006). All the decisions regarding compensations must be passed upon agreement by all the directors and should not be influenced by personal interests. The objectives of the program in the constitution should clearly outline the considerations of the rewarding process. It should clearly indicate the procedures used in generating salary scale tables. This section should clearly state the process used in providing executive packages and roll outs like the perseverance and parachute packages. The United States is the most in failing to address these measures. Not until recently has the government intervened in matters relating to corporate governance. This form of ethical dilemma has been blamed on the conflicting interests of state governance and those of management governance. Bebchuk et al. (2006 88) indicated that the program should also state each element of compensation. This indicates that the program must outline.

All the prime executives in the corporation whose salaries are deemed to be higher than that of other median executive members on the board of the company. This is supposed to state provide the level variance in salary scales among executives of different bands.

Why the executive members should receive a remuneration exceeding that of the non executive employees of the company. In an organization, it is ethical for employees to compare themselves with each other in terms of ranking or level of education. Unbalanced distribution of salary scales among members of the same level is likely to cause internal work conflicts and de-motivation.  In order for non executive employees to be satisfied, the program should clearly outline all the circumstances indicating the reasons for those disparities.

Compensation alignment in consideration of the prudence of risk undertook
This provides that employees are paid in accordance to different kinds of risks they are adhered to in their line of work. Some examples of executives in this category include ship captains and pilots. Ship captains are all times exposed to danger from all angles. With the recent attacks on ships by Somali pirates on the gulf regions of the Indian ocean, ship crew are provided with an increased remuneration in order to cover those dangers ahead. Most captains are declining to lead ships taking those routes involving pirates and in order to get them on board ship owners have to pay them huge salaries.

This program should be tailored and adjusted to address the various types of risks involved in different departments. Two individuals generating the same revenue but exposed to different types of risks should not be gauged in the same level in terms of remuneration. Quantitative, logical and technical judgments should be applied in determining which type of risks requires a more executive pay than another. Also the factors of liquidity, reputation and cost of capital should be taken into consideration in laying out a compensation design for employees exposed to different types of risks.

Executive pay following the principle of performance objectives
This rule is generally used to motivate workers to work hard in order to receive an executive position and salary from the company. It is mostly experienced by sales people all the business development sectors. Sales executives in the insurance industry are said to be the most paid executives in the world. This is because their pay scale is determined by the level of revenue projections generated by an individual. Paying individual in commission basis usually works for the go-getters (go-getters are those individual who settle for nothing but the best. This decision lets the workers set the salary for themselves. If an individual wants to earn more then heshe must have to sale more.

This is the current situation in modern US companies. An analysis of the fortune 500 companies stated that over 400 member companies use these methods in order to increase their sales. Big firms dont employ sales executives on fixed salaries. They usually issue a small retainer for the executive to top it up with commission earned through increased sales. The best performers usually receive huge incentives on top of their salaries. Some of these include huge bonuses in terms of cash rewards, business trips to meet other executives in luxurious business suites and many others. This provision works for the benefit of both the company and the employee.

The compensation outcome should be symmetric to the risk outcome. This means that a company can reward offer bonuses on guarantee that the individuals performance will be equal or more than the incentives offered. This motivates medium executive earners to level themselves with the senior executive earners (Murphy 1999).

Executive pay by stock option
This decision argues that the interest of the CEO should be similar to that of the share holders. This method is used to try and engage the top executives in making wise decisions. This structure has been used by companies in the United States during the hard economic times of 2007-2009. However it is never guaranteed that the method will work but in 10 cases 8 of them proved successful in his united states. This technique aims at rewarding critical decisions. It explains how each element involved in important decisions fit in the compensation objectives hence increasing thinking among other employees. This method increases innovativeness. Basic programmers and technology engineers have reaped a lot from their innovativeness. Big companies are consistently looking for big brains to employ. Lets say for example Microsoft, the company has invested greatly in looking for competed computer wizards around the world. This prevents the concept of employee poaching.

Executive pay following education and experience backgrounds
Most CEOs are successful managers from big firms. In order to benefit from the extended knowledge and expertise of a certain person, a company must be willing to offer an executive salary in return (Pepper 2006). For a company to get certain a successful business oriented person to sit in its board, it must be willing to pay generously for the contributions which the director will bring to the company. This form has been accepted and worked in many organizations. However the constitution of the company must generate a program for electing company directors and executives. This explains the high salaries granted to engineers. Electrical, civil, construction and program engineering are some of the tough careers in the world. It is believed that those who undertake those courses are generally bright individuals. Engineers usually receive greater salaries than any other employees of a firm. This also aims to reward their technical know how in developing and structuring competitive structures. Engineering, communications and construction companies are among the top paying industries in the United States. An engineering manager can not be scaled on the same level as a marketing manager in terms of salary. This has forced engineers to work on contractual basis in order for them to achieve their desired salaries. In Germany, engineers do not seek full time employment. This explains their competitiveness in the world. The best and highly paid engineers are from Germany. For example, NASA was an initiative of a German engineer funded by the United States government (Eling 2002).

Executive pay upon consideration of the time horizon of the risk
An institution can offer executive salaries and incentives to its biggest contributors upon realizing a good financial time. Also on the contrary, executive salaries cannot be compromised over short periods for risks that will be experienced over long periods. If the management realizes positive long-term results on a certain project, it can provide executive incentives to the generators of the project. This also initiates creativity among workers.

 Executive pay upon agreement by all the stake holders
This rationale can be reached in an annual general meeting. The stakeholders of a company can decide to reward the top performers of the company upon realizing positive outcomes in the financial year of consideration. This can only be granted if the stake holders are satisfied with the performance of these employees and that of the company financially.

 Executive pay by the Fortune 500 compensation requirements
A recent study revealed by the Forbes magazine outlined that fortune 500 company CEOs salaries are determined by the performance of the company in that financial year. This performance is calculated in terms of cash pays, bonuses, amount invested and yielding profits in restricted stocks and the returns on the amount generated from exercised stocks.

The fortune 500 companies are the best performing companies in the United States, if a company is in the list of the top 500 and by chance manage to be among the top 50, it calls for executive salaries for the top executives of the company. They argue that its the efforts of the top minds that have propelled the company to reach those heights and there are no exemptions for that. This rule has been in practice at the Apple INC.

Executive pay following the countrys law on remuneration and other control systems
This is the most effective of all. The federal government upon realizing exceeded increase in the variation between executive and non executive workers salaries decided to develop a regulatory control system that would develop and promote principled pay practices. The government indicated that

The senior human resource should be given the power to make the final decisions in matters relating to remunerations.

It provides all the companies with regulations and guidelines on how to set executive salaries. This provision has been however been superseded by the provisions and decisions of the company management and directors.

It regulates a uniform salary scale to fit all the individuals in the country. However, it advocates for a pay-for-performance philosophy to encourage high performance (Zhou 1999).

It informs the public about the criterias followed in enacting the corporate governance practices and how they fit the benefits of all the stakeholders while keeping up to trend systems.
Conducts research, which it provides to the public, in order to help inform the executive compensation dialogue (Walker 2010).

Conclusion
The question of executive salaries in big firms has been experienced around the world for the past fifty years. Executive salaries based on performance are not a bad initiative as revealed by a United Kingdom analyst David walker. He indicated that executive salaries based on performance are the best motivation an executive can get. Graham et al. (2008 33) blamed the failure of the concept of executive salaries on the decisions of company directors. He claimed that if only directors could bridge up the gap between the executives and non executive salary scales and base executive salary on performance only then the concept would work effectively.