Discuss whether economic theory and the available empirical evidence Essay

Discuss whether economic theory and the available empirical evidence justi - Essay Example During the time of peek economy the company has to endure extra remuneration and compensation for the CEOs. Moreover, there is always deliberate discussion over the compensation policy, especially during the time of poor company performance and financial crisis (Balsam, 2002). In this regard, the aim of the paper is to examine the effect in the executive compensation regardless of the poor performance of the company with the help of various economic theories and the empirical evidence. According to Bertrand & Mullainathan (2001) the remuneration of the CEOs in an organisation is based on the principle of the economic agency model. In accordance with this model, the firm owners act as the principal and the hired CEOs are the agents acting on behalf of the owner. The authors argued the fact that the shareholder pays a key role in the organisation in designing the remuneration system of CEO’s in order to maximise the value of the organisation. Moreover, the article examines the fact weather the CEOs are paid on the basis of luck or not. Luck represents changes in the performance of the company, which are beyond the control of CEOs. These three measures include the changes in the pricing trend, firm performance, and year-on-year dissimilarity in the organisational performance. The finding of the evidence revealed that in the different scenario the CEOs pay is significant to luck. Additionally, it has been revealed that in the organisation the payment is largely affected by the luck not with the performance. Pay for the luck has large influence over the discretionary components, including compensation, salary, and bonus structure. It has been determined from the study that mode of the corporate governance plays a crucial role that significantly influences the CEOs remuneration (Bertrand & Mullainathan, 2001). Moreover, the principle of agency model sometime helps the