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Executive compensation is linked to corporate governance as it can be used to motivate executives to perform better. Compensation can include personal stakes in the business, and decisions must be made ethically and with accountability by stakeholders.
The relationship between executive compensation and corporate governance can be seen in the way that executive compensation can be used in different ways as part of corporate governance for various purposes. Corporate governance refers to the fusion of all the different applications and platforms used by those responsible for running the affairs of a company. The people involved in corporate governance are those inside and outside the company who have a say in how the company is run, including the board of directors and shareholders. Even employees and various managers within the company can contribute to the way in which company affairs should be managed. To this end, the link between executive compensation and corporate governance is reflected in the decisions made by such stakeholders in the company with respect to executive compensation.
One of the reasons why the topic of executive compensation is important is because the right combination of compensation and benefits can have an impact on the general behavior of the executive in charge by translating it into a form of motivation for that person to perform better. . This link between executive compensation and corporate governance is based on the fact that it is inherent in human nature for people to strive for ever greater levels of excellence when they have a source of motivation to encourage them. In the case of a company, the executive in charge is responsible for making decisions, developing and implementing policies that will determine the direction that the fortunes of the company will take. When such an executive is properly motivated through proper compensation, he or she will put in even more effort to contribute more information to the growth of the company.
Sometimes the motivating factor is not necessarily based solely on mere finances, which is where the right decision regarding executive compensation by stakeholders will play a significant role in overall corporate governance. In this case, the compensation and benefits could include the offer of a personal stake in the business in the form of a certain percentage of shares, which will give the executive more motivation to work harder, since they have a vested interest in success. . of the business. Since executives are also part of the corporate governance mechanism of the company, decisions regarding executive compensation must also be viewed from the point of accountability and the duty of other members of the board of directors to reduce any unforeseen expenses. Ethical use of company money by the company. executives
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