Executive Compensation System Essay

I. INTRODUCTION

According Jensen and Meckling(1976, p 8), executives have a tendency to put more emphasis on their own interest when they share little mutual interest with shareholders. They would not take bold action but only try to maximize their perquisite. In order to mitigate such insincerity, executive compensation system have developed into two direction. First, companies offer substantial amount of remuneration to executives. In 2015, Average total remuneration of DAX CEOs was € 5.86 million (hkp/// group, 2017). This is almost 180 times higher than average German household income($33,652) (Oecdbetterlifeindex.org, 2017).

However, high incentive alone does not guarantee that they will engage in risk taking. So as a second option,

In order to analyze executive compensation system, this paper have examined one of DAX Company, Merck. Company Webpage(Merckgroup.com, 2017), Company Brochure(Merck – Who we are, 2017), Company Annual Report(merck_annual_report_2016, 2017), were used as a reference.

Paper is divided into three parts. Part one describes essential terminology related to executive compensation system. Part two covers general description of Merck and its executive compensation system. Finally, part three delineates limitation of work and suggestion for future

As mentioned earlier, Merck is ‘KgaA’ or ‘limited partners on shares’. This means there is two entity which governs the company; Merck KgaA, and E Merck KG. Merck KgaA is a personally liable partners which takes part in general management. On the otherhand, E. Merck KG is limited liability shareholders who does not participate in business activity. However, since E. Merck KG owns 70.3% of the total capital of Merck KGaA, (Merck – Who we are. 2017 p 12), it holds right to influences company activities