Recruitment and Retention of Ceos
Problem Statement
Recruitment and retention of Chief Executive Officers has been at the heart of businesses since the 1980’s according to Fulmer. However escalating executive compensation has limited the abilities of some businesses to recruit and retain employees. According to Fulmer the problem began over time with companies willing to hire from outside the company which in turn creates “greater demand for external hires to more job opportunities for sitting executives” (Fulmer 2009). With companies hiring externally the market exploded and the search for the extremely talented dramatically increased the executive pay, but that is just the beginning of the problem.
A side effect to the massive increase in executive pay is less money for the rest of the company. The shareholders are going to get their money; otherwise the executives will be replaced. The company has to raise the money to pay the executives from somewhere. The area that has been diminished must come from the rest of the company: benefits and pay of the rest of the company.
With escalating CEO compensation, companies must find new creative ways to retain and recruit talented employees.
Alternatives
Now that the executives are receiving the massive retention bonuses, companies are turning to alternative ways to retain the talented executives. “Stock options have become an integral component of Chief executive officer (CEO) compensation packages. Corporate boards increasingly rely on stock options as a compensation tool and as a device for incentive alignment and managerial retention (Kalpathy 2009). With stock options an executives pay is directly tied to how the company fairs in the market. If the price goes up the executive earns more, however if the company’s stock declines the compensation does too.
For the employees in the company as a whole, stock options are not a solution to the problem. However, future opportunities are. “As the global economy improves,
Recruitment and retention of Chief Executive Officers has been at the heart of businesses since the 1980’s according to Fulmer. However escalating executive compensation has limited the abilities of some businesses to recruit and retain employees. According to Fulmer the problem began over time with companies willing to hire from outside the company which in turn creates “greater demand for external hires to more job opportunities for sitting executives” (Fulmer 2009). With companies hiring externally the market exploded and the search for the extremely talented dramatically increased the executive pay, but that is just the beginning of the problem.
A side effect to the massive increase in executive pay is less money for the rest of the company. The shareholders are going to get their money; otherwise the executives will be replaced. The company has to raise the money to pay the executives from somewhere. The area that has been diminished must come from the rest of the company: benefits and pay of the rest of the company.
With escalating CEO compensation, companies must find new creative ways to retain and recruit talented employees.
Alternatives
Now that the executives are receiving the massive retention bonuses, companies are turning to alternative ways to retain the talented executives. “Stock options have become an integral component of Chief executive officer (CEO) compensation packages. Corporate boards increasingly rely on stock options as a compensation tool and as a device for incentive alignment and managerial retention (Kalpathy 2009). With stock options an executives pay is directly tied to how the company fairs in the market. If the price goes up the executive earns more, however if the company’s stock declines the compensation does too.
For the employees in the company as a whole, stock options are not a solution to the problem. However, future opportunities are. “As the global economy improves,
References: Cianni, M., & Gundy, P. (2012). Putting performance back into retention. Financial Executive, 28(9), 72-77. http://www.FinancialExecutive.org Fulmer, I. (2009). The elephant in the room: Labor market influences on CEO compensation. Personnel Psychology, 62(4), 659-695. doi:10.1111/j.1744-6570.2009.01154.x Hagel, J. (2012). Talent: A battle on two fronts. Journal Of Accountancy, 214(3), 20-21. http://www.JournalofAccountancy.com Hausknect, J. P., Rodda, J., & Howard, M. J. (2009). Targeted employee retention: Performance-based and job related differences in reported reasons for staying. Human Resources Management, 48(2), 269-288). http://www.HRMtheJournal.com Kalpathy, S. (2009). Stock option repricing and its alternatives: An empirical examination. Journal Of Financial And Quantitative Analysis, 44(6), 1459-1487. http://journals.cambridge.org