A polar argument to the previous paragraph purports that shareholders should not have a say on Executive pay. The line of reasoning of this statement is based on the hypothetical scenario of a conservative Executive. If shareholders are faced with a CEO who follows a conservative strategy in which the working capital of the company is not fully utilised and is risk averse and prudent, the Executive faces the wrath of the shareholders. Shareholders believe the Executive is not maximizing their interests as assets which could be useful in increasing the wealth of the company are unused. Thus, a conflict ensues as the Conservative CEO finds it harder and harder to meet preset targets and to maximize profits, as the CEO is prone to investing in low risk investments which are known for having low returns. In addition, the CEO and the shareholders have opposing objectives. …show more content…
This is depicted in the idea that if a company was based in a booming sector and shareholders have a say on Executive Pay, this could lead to the departure of the incumbent executive and also the failure to attract top executives. This case happens because if the current CEO keeps on exceeding targets and profits, the CEO is not rewarded enough for his ambitions. As stated, an Executive should be rewarded for success, in order to boost morale. Moreover, if the CEO was influential, the departure could lead to a fall in stock prices which is not good for shareholders. Shareholders have to understand that in order to attract and keep the best, wages should be high. As a result of paying high wages, shareholders can fulfil their aim of maximizing their