Data analyse and Literature Review Essay Example | Topics and Well Written Essays - 2000 words

Data analyse and Literature Review - Essay Example A more effective approach in understanding this pay should be based on considering it as an outcome of socially developed arrangements of corporate governance whereby the parties involved possess relative discretion to affect the outcomes. Including such a view in an attempt to understand executive pay tends to provide a much more conclusive explanation of the ongoing debate about executive pay both in practice and in theory (Hengartner, 2006). The issue of executive pay is one of the aspects of business that has been generating newspaper headlines quite often in the recent past. The media tends to regularly display the public outrage on the extreme highs that executive bonuses, financial gratuities and salaries have reached. In the middle of all this turmoil, many company directors have found it difficult to explain why and how much they pay their various executives as they do. The field of determining and explaining executive pay is dominated by the agency theory’s perfect contracting approach (Jensen & Meckling, 1976). This theory on executive pay explains that this is a key instrument used in alleviating agency problems. In order to ensure the separation between firm control and firm ownership is harmless, the theory states that executive pay is a key instrument used in aligning the interests between management and shareholders (Fried and Bebchuk, 2004). Pay setting is often seen as an issue of optimal pay design that is based on risk preferences and market forces. (Wiseman and Gomez-Mejia, 1997) Market forces contribute to optimal pay structures and levels that compensate the concerned executives for the various risks they took in managing the corporation in the shareholders’ best interests. This is the reason that most of the literature and studies conducted on executive pay structures tends to focus on the