In this essay, I will first clarify what constitutes executive pay, before highlighting the theory behind the increases in this pay and well as some of the arguments for and against these increases.

Traditionally executives' pay packets were a straight salary. More recently, executives have been receiving compensation in the form of a straight salary plus certain extras. These include:

· Bonus. A sum of money awarded if certain set performance criteria are met, (usually yearly).

· Stock options. The option to buy the companies stock at a specified price at a future date.

Stock options and bonuses are the main tool used to enhance performance, however other variations exist, for example. Phantom stock plans enable the C.E.O. to gain the benefits of shares such as dividends and appreciation without actually owning any. Reload options enable the executive to sell his options at the price when the shares were at their highest. Restricted stock awards are only exercisable when performance criteri

The explanation of C.E.O. pay given above helps us to understand Mr. Johnson's statement. The idea is simple, by linking pay to performance through stock options; Chief Executives will have a personal stake in the company doing well. However, the seemingly excessive amounts being paid to top executives have led to controversy. As Mr. Bieber points out, executives receive, "more compensation for a years effort than could be spent in several lifetimes". If the increase in pay is to encourage executives to work hard in the interests of the company, then...

5. Finally, companies favour using options because they don't show up on the income statement, unlike some other forms of pay.

These suggestions are indeed useful, however, in my opinion they don't tackle the issue that I feel causes the most controversy, gross inequality: The ability of executives to barter up pay due to the inadequate supply of experienced, effective C.E.O.s.. Unfortunately, putting limits on compensation and incentives will also mean limiting the ability of companies to compete with each other for executives. The solution may be to increase the availability of these few good men. Encouraging the top executives to work closely with young managers who have been ear-marked to do well in the future, may, over the long term, increase the number of competent executives for the future jobs.

On 17th July 1995 the Greenbury Committee published its findings on executive pay in the UK, it came up with several suggestions:

There are a number of reasons that executive compensation has changed format.

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