Executive compensation

From Wikipedia, the free encyclopedia

Executive compensation or executive pay is composed of the financial compensation and other non-financial awards received by an executive from their firm for their service to the organization. It is typically a mixture of salary, bonuses, shares of or call options on the company stock, benefits, and perquisites, ideally configured to take into account government regulations, tax law, the desires of the organization and the executive, and rewards for performance.

The three decades starting with the 1980s saw a dramatic rise in executive pay relative to that of an average worker's wage in the United States, and to a lesser extent in a number of other countries. Observers differ as to whether this rise is a natural and beneficial result of competition for scarce business talent that can add greatly to stockholder value in large companies, or a socially harmful phenomenon brought about by social and political changes that have given executives greater control over their own pay. Recent studies have indicated that executive compensation should be better aligned with social goals (e.g. public health goals). Executive pay is an important part of corporate governance, and is often determined by a company's board of directors.

Types

There are six basic tools of compensation or remuneration:

• salary
• short-term incentives (STIs), sometimes known as bonuses
• long-term incentive plans (LTIPs)
• employee benefits
• paid expenses (perquisites)
• insurance

In a modern corporation, the CEO and other top executives are often paid salary plus short-term incentives or bonuses. This combination is referred to as Total Cash Compensation (TCC). Short-term incentives usually are formula-driven and have some performance criteria attached depending on the role of the executive. For example, the Sales Director's performance related bonus may be based on incremental revenue growth turnover; a CEO's could be based on incremental profitability and revenue growth. Bonuses are after-the-fact (not formula driven) and often discretionary. Executives may also be compensated with a mixture of cash and shares of the company which are almost always subject to vesting restrictions (a long-term incentive). To be considered a long-term incentive the measurement period must be in excess of one year (3–5 years is common). The vesting term refers to the period of time before the recipient has the right to transfer shares and realize value. Vesting can be based on time, performance or both. For example, a CEO might get 1 million in cash, and 1 million in company shares (and share buy options used). Vesting can occur in two ways: "cliff vesting" (vesting occurring on one date), and "graded vesting" (which occurs over a period of time) and which maybe "uniform" (e.g., 20% of the options vest each year for 5 years) or "non-uniform" (e.g., 20%, 30% and 50% of the options vest each year for the next three years). Other components of an executive compensation package may include such perks as generous retirement plans, health insurance, a chauffeured limousine, an executive jet, and interest-free loans for the purchase of housing.

Stock options

Executive stock option pay rose dramatically in the United States after scholarly support from University of Chicago educated Professors Michael C. Jensen and Kevin J. Murphy. Due to their publications in the Harvard Business Review 1990 and support from Wall Street and institutional investors, Congress passed a law making it cost effective to pay executives in equity. 

Supporters of stock options say they align the interests of CEOs to those of shareholders, since options are valuable only if the stock price remains above the option's strike price. Stock options are now counted as a corporate expense (non-cash), which impacts a company's income statement and makes the distribution of options more transparent to shareholders. Critics of stock options charge that they are granted without justification as there is little reason to align the interests of CEOs with those of shareholders. Empirical evidence shows since the wide use of stock options, executive pay relative to workers has dramatically risen. Moreover, executive stock options contributed to the accounting manipulation scandals of the late 1990s and abuses such as the options backdating of such grants. Finally, researchers have shown that relationships between executive stock options and stock buybacks, implying that executives use corporate resources to inflate stock prices before they exercise their options. 

Stock options also incentivize executives to engage in risk-seeking behavior. This is because the value of a call option increases with increased volatility. Stock options also present a potential up-side gain (if the stock price goes up) for the executive, but no downside risk (if the stock price goes down, the option simply isn't exercised). Stock options therefore can incentivize excessive risk seeking behavior that can lead to catastrophic corporate failure.

Restricted stock

Executives are also compensated with restricted stock, which is stock given to an executive that cannot be sold until certain conditions are met and has the same value as the market price of the stock at the time of grant. As the size of stock option grants have been reduced, the number of companies granting restricted stock either with stock options or instead of, has increased. Restricted stock has its detractors, too, as it has value even when the stock price falls. As an alternative to straight time vested restricted stock, companies have been adding performance type features to their grants. These grants, which could be called performance shares, do not vest or are not granted until these conditions are met. These performance conditions could be earnings per share or internal financial targets.

Levels

The levels of compensation in all countries has been rising dramatically over the past decades. Not only is it rising in absolute terms, but also in relative terms. In 2007, the world's highest paid chief executive officers and chief financial officers were American. They made 400 times more than average workers—a gap 20 times bigger than it was in 1965. In 2010 the highest paid CEO was Viacom's Philippe P. Dauman at $84.5 million The U.S. has the world's highest CEO's compensation relative to manufacturing production workers. According to one 2005 estimate the U.S. ratio of CEO's to production worker pay is 39:1 compared to 31.8:1 in UK; 25.9:1 in Italy; 24.9:1 in New Zealand.

Controversy

The explosion in executive pay has become controversial, criticized by not only leftists, but conservative establishmentarians such as Peter Drucker, John Bogle, Warren Buffett.

The idea that stock options and other alleged pay-for-performance are driven by economics has also been questioned. According to economist Paul Krugman,

"Today the idea that huge paychecks are part of a beneficial system in which executives are given an incentive to perform well has become something of a sick joke. A 2001 article in Fortune, "The Great CEO Pay Heist" encapsulated the cynicism: You might have expected it to go like this: The stock isn't moving, so the CEO shouldn't be rewarded. But it was actually the opposite: The stock isn't moving, so we've got to find some other basis for rewarding the CEO.` And the article quoted a somewhat repentant Michael Jensen [a theorist for stock option compensation]: `I've generally worried these guys weren't getting paid enough. But now even I'm troubled.'"

Recently, empirical evidence showed that compensation consultants only further exacerbated the controversy. A study of more than 1,000 US companies over six years finds “strong empirical evidence” that executive compensation consultants have been hired as a “justification device” for higher CEO pay.

Defenders of high executive pay say that the global war for talent and the rise of private equity firms can explain much of the increase in executive pay. For example, while in conservative Japan a senior executive has few alternatives to his current employer, in the United States it is acceptable and even admirable for a senior executive to jump to a competitor, to a private equity firm, or to a private equity portfolio company. Portfolio company executives take a pay cut but are routinely granted stock options for ownership of ten percent of the portfolio company, contingent on a successful tenure. Rather than signaling a conspiracy, defenders argue, the increase in executive pay is a mere byproduct of supply and demand for executive talent. However, U.S. executives make substantially more than their European and Asian counterparts.

United States

Source: Economic Policy Institute. 2011.

 

The U.S. Securities and Exchange Commission (SEC) has asked publicly traded companies to disclose more information explaining how their executives' compensation amounts are determined. The SEC has also posted compensation amounts on its website to make it easier for investors to compare compensation amounts paid by different companies. It is interesting to juxtapose SEC regulations related to executive compensation with Congressional efforts to address such compensation.

Since the 1990s, CEO compensation in the US has outpaced corporate profits, economic growth and the average compensation of all workers. Between 1980 and 2004, Mutual Fund founder John Bogle estimates total CEO compensation grew 8.5% year, compared to corporate profit growth of 2.9%/year and per capita income growth of 3.1%. By 2006 CEOs made 400 times more than average workers—a gap 20 times bigger than it was in 1965. As a general rule, the larger the corporation the larger the CEO compensation package.

The share of corporate income devoted to compensating the five highest paid executives of (each) public firms more than doubled from 4.8% in 1993-1995 to 10.3% in 2001-2003. The pay for the five top-earning executives at each of the largest 1500 American companies for the ten years from 1994 to 2004 is estimated at approximately $500 billion in 2005 dollars.

As of late March 2012 USA Today's tally showed the median CEO pay of the S&P 500 for 2011 was $9.6 million.

Lower level executives also have fared well. About 40% of the top 0.1% income earners in the United States are executives, managers, or supervisors (and this doesn't include the finance industry) — far out of proportion to less than 5% of the working population that management occupations make up.

A study by University of Florida researchers found that highly paid CEOs improve company profitability as opposed to executives making less for similar jobs. However, a review of the experimental and quasi-experimental research relevant to executive compensation, by Philippe Jacquart and J. Scott Armstrong, found opposing results. In particular, the authors conclude that "the notion that higher pay leads to the selection of better executives is undermined by the prevalence of poor recruiting methods. Moreover, higher pay fails to promote better performance. Instead, it undermines the intrinsic motivation of executives, inhibits their learning, leads them to ignore other stakeholders, and discourages them from considering the long-term effects of their decisions on stakeholders" Another study by Professors Lynne M. Andersson and Thomas S. Batemann published in the Journal of Organizational Behavior found that highly paid executives are more likely to behave cynically and therefore show tendencies of unethical performance.

Australia

In Australia, shareholders can vote against the pay rises of board members, but the vote is non-binding. Instead the shareholders can sack some or all of the board members. Australia's corporate watchdog, the Australian Securities and Investments Commission has called on companies to improve the disclosure of their remuneration arrangements for directors and executives.

Canada

A 2012 report by the Canadian Centre for Policy Alternatives demonstrated that the top 100 Canadian CEOs were paid an average of C$8.4 million in 2010, a 27% increase over 2009, this compared to C$44,366 earned by the average Canadian that year, 1.1% more than in 2009. The top three earners were automotive supplier Magna International Inc. founder Frank Stronach at C$61.8 million, co-CEO Donald Walker at C$16.7 million and former co-CEO Siegfried Wolf at C$16.5 million.

Europe

In 2008, Jean-Claude Juncker, president of the European Commission's “Eurogroup” of finance ministers, called excessive pay a “social scourge” and demanded action.

United Kingdom

Although executive compensation in the UK is said to be "dwarfed" by that of corporate America, it has caused public upset. In response to criticism of high levels of executive pay, the Compass organisation set up the High Pay Commission. Its 2011 report described the pay of executives as "corrosive".

In December 2011/January 2012 two of the country’s biggest investors, Fidelity Worldwide Investment, and the Association of British Insurers, called for greater shareholder control over executive pay packages. Dominic Rossi of Fidelity Worldwide Investment stated, “Inappropriate levels of executive reward have destroyed public trust and led to a situation where all directors are perceived to be overpaid. The simple truth is that remuneration schemes have become too complex and, in some cases, too generous and out of line with the interests of investors.” Two sources of public anger were Barclays, where senior executives were promised million-pound pay packages despite a 30% drop in share price; and Royal Bank of Scotland where the head of investment banking was set to earn a "large sum" after thousands of employees were made redundant.

Asia

Since the early 2000s, companies in Asia are following the U.S. model in compensating top executives, with bigger paychecks plus bonuses and stock options. However, with a great diversity in stages of development in listing rules, disclosure requirements and quality of talent, the level and structure of executive pay is still very different across Asia countries. Disclosures on top executive pay is less transparent compared to that in the United Kingdom. Singapore and Hong Kong stock exchange rules are the most comprehensive, closely followed by Japan's, which has stepped up its requirements since 2010.

China

Executive compensation in China still differs from compensation in Europe and the U.S. but the situation is changing rapidly. Based on a research paper by Conyon, executive compensation in China is mostly composed of salaries and bonuses, as stock options and equity incentives are relatively rare elements of a Chinese senior manager's compensation package. Since 2016 Chinese-listed companies were required to report total compensation of their top managers and board members. However, transparency and what information companies choose to release to the public varies greatly. Chinese private companies usually implement a performance-based compensation model, whereas State-owned enterprises apply a uniform salary-management system. Executive compensation for Chinese executives reached USD 150 000 on average and increased by 9.1% in 2017.

Regulation

There are a number of strategies that could be employed as a response to the growth of executive compensation.

• Extend the vesting period of executives' stock and options. Current vesting periods can be as short as three years, which encourages managers to inflate short-term stock price at the expense of long-run value, since they can sell their holdings before a decline occurs.
• As passed in the Swiss referendum "against corporate Rip-offs" of 2013, investors gain total control over executive compensation, and the executives of a board of directors. Institutional intermediaries must all vote in the interests of their beneficiaries and banks are prohibited from voting on behalf of investors.
• Disclosure of salaries is the first step, so that company stakeholders can know and decide whether or not they think remuneration is fair. In the UK, the Directors' Remuneration Report Regulations 2002 introduced a requirement into the old Companies Act 1985, the requirement to release all details of pay in the annual accounts. This is now codified in the Companies Act 2006. Similar requirements exist in most countries, including the U.S., Germany, and Canada.
• A say on pay - a non-binding vote of the general meeting to approve director pay packages, is practised in a growing number of countries. Some commentators have advocated a mandatory binding vote for large amounts (e.g. over $5 million). The aim is that the vote will be a highly influential signal to a board to not raise salaries beyond reasonable levels. The general meeting means shareholders in most countries. In most European countries though, with two-tier board structures, a supervisory board will represent employees and shareholders alike. It is this supervisory board which votes on executive compensation.
• Another proposed reform is the bonus-malus system, where executives carry down-side risk in addition to potential up-side reward.
• Progressive taxation is a more general strategy that affects executive compensation, as well as other highly paid people. There has been a recent trend to cutting the highest bracket tax payers, a notable example being the tax cuts in the U.S. For example, the Baltic States have a flat tax system for incomes. Executive compensation could be checked by taxing more heavily the highest earners, for instance by taking a greater percentage of income over $200,000.
• Maximum wage is an idea which has been enacted in early 2009 in the United States, where they capped executive pay at $500,000 per year for companies receiving extraordinary financial assistance from the U.S. taxpayers. The argument is to place a cap on the amount that any person may legally make, in the same way as there is a floor of a minimum wage so that people can not earn too little.
• Debt Like Compensation - If an executive is compensated exclusively with equity, he will take risks to benefit shareholders at the expense of debtholders. Thus, there are several proposals to compensate executives with debt as well as equity, to mitigate their risk-shifting tendencies.

• Indexing Operating Performance is a way to make bonus targets business cycle independent. Indexed bonus targets move with the business cycle and are therefore fairer and valid for a longer period of time.
• Two strikes - In Australia an amendment to the Corporations Amendment(Improving Accountability on Director and Executive Remuneration) Bill 2011 puts in place processes to trigger a re-election of a Board where a 25% "no" vote by shareholders to the company's remuneration report has been recorded in two consecutive annual general meetings. When the second "no" vote is recorded at an AGM, the meeting will be suspended and shareholders will be asked to vote on whether a spill meeting is to be held. This vote must be upheld by at least a 50% majority for the spill (or re-election process) to be run. At a spill meeting all directors current at the time the remuneration report was considered are required to stand for re-election.
• Independent non-executive director setting of compensation is widely practised. An independent remuneration committee is an attempt to have pay packages set at arms' length from the directors who are getting paid.
• On March 2016, the Israeli Parliament set a unique law that effectively sets an upper bound to executive compensation in financial firms. According to the Law, an annual executive compensation greater than 2.5 million New Israeli Shekel (approximately US$650,000) cannot be granted by a financial corporation if it is more than 35 times the lowest salary paid by the corporation.

Management

From Wikipedia, the free encyclopedia

An organization chart for the United States Coast Guard shows the hierarchy of managerial roles in that organization.

 

Management (or managing) is the administration of an organization, whether it is a business, a not-for-profit organization, or government body. Management includes the activities of setting the strategy of an organization and coordinating the efforts of its employees (or of volunteers) to accomplish its objectives through the application of available resources, such as financial, natural, technological, and human resources. The term "management" may also refer to those people who manage an organization. 

Social scientists study management as an academic discipline, investigating areas such as social organization and organizational leadership. Some people study management at colleges or universities; major degrees in management include the Bachelor of Commerce (B.Com.) Bachelor of Business Administration (BBA.) Master of Business Administration (MBA.) Master in Management (MScM or MIM) and, for the public sector, the Master of Public Administration (MPA) degree. Individuals who aim to become management specialists or experts, management researchers, or professors may complete the Doctor of Management (DM), the Doctor of Business Administration (DBA), or the PhD in Business Administration or Management. There has recently been a movement for evidence-based management.

Larger organizations generally have three levels of managers, which are typically organized in a hierarchical, pyramid structure:

• Senior managers, such as members of a Board of Directors and a Chief Executive Officer (CEO) or a President of an organization. They set the strategic goals of the organization and make decisions on how the overall organization will operate. Senior managers are generally executive-level professionals, and provide direction to middle management who directly or indirectly report to them.
• Middle managers, examples of these would include branch managers, regional managers, department managers and section managers, who provide direction to front-line managers. Middle managers communicate the strategic goals of senior management to the front-line managers.
• Lower managers, such as supervisors and front-line team leaders, oversee the work of regular employees (or volunteers, in some voluntary organizations) and provide direction on their work.

In smaller organizations, an individual manager may have a much wider scope. A single manager may perform several roles or even all of the roles commonly observed in a large organization.

Definitions

Views on the definition and scope of management include:

• According to Henri Fayol, "to manage is to forecast and to plan, to organise, to command, to co-ordinate and to control."
• Fredmund Malik defines it as "the transformation of resources into utility."
• Management included as one of the factors of production – along with machines, materials and money.
• Ghislain Deslandes defines it as “a vulnerable force, under pressure to achieve results and endowed with the triple power of constraint, imitation and imagination, operating on subjective, interpersonal, institutional and environmental levels”.
• Peter Drucker (1909–2005) saw the basic task of management as twofold: marketing and innovation. Nevertheless, innovation is also linked to marketing (product innovation is a central strategic marketing issue). Peter Drucker identifies marketing as a key essence for business success, but management and marketing are generally understood as two different branches of business administration knowledge.

Theoretical scope

Management involves identifying the mission, objective, procedures, rules and manipulation of the human capital of an enterprise to contribute to the success of the enterprise. This implies effective communication: an enterprise environment (as opposed to a physical or mechanical mechanism) implies human motivation and implies some sort of successful progress or system outcome. As such, management is not the manipulation of a mechanism (machine or automated program), not the herding of animals, and can occur either in a legal or in an illegal enterprise or environment. From an individual's perspective, management does not need to be seen solely from an enterprise point of view, because management is an essential function to improve one's life and relationships. Management is therefore everywhere and it has a wider range of application. Based on this, management must have humans. Communication and a positive endeavor are two main aspects of it either through enterprise or independent pursuit. Plans, measurements, motivational psychological tools, goals, and economic measures (profit, etc.) may or may not be necessary components for there to be management. At first, one views management functionally, such as measuring quantity, adjusting plans, meeting goals. This applies even in situations where planning does not take place. From this perspective, Henri Fayol (1841–1925) considers management to consist of five functions:

1. planning (forecasting)
2. organizing
3. commanding
4. coordinating
5. controlling

In another way of thinking, Mary Parker Follett (1868–1933), allegedly defined management as "the art of getting things done through people".^[6] She described management as philosophy.

Critics, however, find this definition useful but far too narrow. The phrase "management is what managers do" occurs widely, suggesting the difficulty of defining management without circularity, the shifting nature of definitions and the connection of managerial practices with the existence of a managerial cadre or of a class.

One habit of thought regards management as equivalent to "business administration" and thus excludes management in places outside commerce, as for example in charities and in the public sector. More broadly, every organization must "manage" its work, people, processes, technology, etc. to maximize effectiveness. Nonetheless, many people refer to university departments that teach management as "business schools". Some such institutions (such as the Harvard Business School) use that name, while others (such as the Yale School of Management) employ the broader term "management". 

English-speakers may also use the term "management" or "the management" as a collective word describing the managers of an organization, for example of a corporation. Historically this use of the term often contrasted with the term "labor" – referring to those being managed.

But in the present era the concept of management is identified in the wide areas and its frontiers have been pushed to a broader range. Apart from profitable organizations even non-profitable organizations (NGOs) apply management concepts. The concept and its uses are not constrained. Management on the whole is the process of planning, organizing, coordinating, leading and controlling.

Nature of work

In profitable organizations, management's primary function is the satisfaction of a range of stakeholders. This typically involves making a profit (for the shareholders), creating valued products at a reasonable cost (for customers), and providing great employment opportunities for employees. In nonprofit management, add the importance of keeping the faith of donors. In most models of management and governance, shareholders vote for the board of directors, and the board then hires senior management. Some organizations have experimented with other methods (such as employee-voting models) of selecting or reviewing managers, but this is rare.

History

Some see management as a late-modern (in the sense of late modernity) conceptualization. On those terms it cannot have a pre-modern history – only harbingers (such as stewards). Others, however, detect management-like thought among ancient Sumerian traders and the builders of the pyramids of ancient Egypt. Slave-owners through the centuries faced the problems of exploiting/motivating a dependent but sometimes unenthusiastic or recalcitrant workforce, but many pre-industrial enterprises, given their small scale, did not feel compelled to face the issues of management systematically. However, innovations such as the spread of Hindu numerals (5th to 15th centuries) and the codification of double-entry book-keeping (1494) provided tools for management assessment, planning and control.

• An organisation is more stable if members have the right to express their differences and solve their conflicts within it.
• While one person can begin an organisation, "it is lasting when it is left in the care of many and when many desire to maintain it".
• A weak manager can follow a strong one, but not another weak one, and maintain authority.
• A manager seeking to change an established organization "should retain at least a shadow of the ancient customs".

With the changing workplaces of industrial revolutions in the 18th and 19th centuries, military theory and practice contributed approaches to managing the newly-popular factories.

Given the scale of most commercial operations and the lack of mechanized record-keeping and recording before the industrial revolution, it made sense for most owners of enterprises in those times to carry out management functions by and for themselves. But with growing size and complexity of organizations, a distinction between owners (individuals, industrial dynasties or groups of shareholders) and day-to-day managers (independent specialists in planning and control) gradually became more common.

Etymology

The English verb "manage" comes from the Italian maneggiare (to handle, especially tools or a horse), which derives from the two Latin words manus (hand) and agere (to act). The French word for housekeeping, ménagerie, derived from ménager ("to keep house"; compare ménage for "household"), also encompasses taking care of domestic animals. Ménagerie is the French translation of Xenophon's famous book Oeconomicus (Greek: Οἰκονομικός) on household matters and husbandry. The French word mesnagement (or ménagement) influenced the semantic development of the English word management in the 17th and 18th centuries.

Early writing

Management (according to some definitions) has existed for millennia, and several writers have produced background works that have contributed to modern management theories. Some theorists have cited ancient military texts as providing lessons for civilian managers. For example, Chinese general Sun Tzu in his 6th-century BC work The Art of War recommends (when re-phrased in modern terminology) being aware of and acting on strengths and weaknesses of both a manager's organization and a foe's. The writings of influential Chinese Legalist philosopher Shen Buhai may be considered to embody a rare premodern example of abstract theory of administration.

Various ancient and medieval civilizations produced "mirrors for princes" books, which aimed to advise new monarchs on how to govern. Plato described job specialization in 350 BC, and Alfarabi listed several leadership traits in AD 900. Other examples include the Indian Arthashastra by Chanakya (written around 300 BC), and The Prince by Italian author Niccolò Machiavelli (c. 1515).

Written in 1776 by Adam Smith, a Scottish moral philosopher, The Wealth of Nations discussed efficient organization of work through division of labour. Smith described how changes in processes could boost productivity in the manufacture of pins. While individuals could produce 200 pins per day, Smith analyzed the steps involved in manufacture and, with 10 specialists, enabled production of 48,000 pins per day.

19th century

Classical economists such as Adam Smith (1723–1790) and John Stuart Mill (1806–1873) provided a theoretical background to resource allocation, production, and pricing issues. About the same time, innovators like Eli Whitney (1765–1825), James Watt (1736–1819), and Matthew Boulton (1728–1809) developed elements of technical production such as standardization, quality-control procedures, cost-accounting, interchangeability of parts, and work-planning. Many of these aspects of management existed in the pre-1861 slave-based sector of the US economy. That environment saw 4 million people, as the contemporary usages had it, "managed" in profitable quasi-mass production.

Salaried managers as an identifiable group first became prominent in the late 19th century.

20th century

By about 1900 one finds managers trying to place their theories on what they regarded as a thoroughly scientific basis (see scientism for perceived limitations of this belief). Examples include Henry R. Towne's Science of management in the 1890s, Frederick Winslow Taylor's The Principles of Scientific Management (1911), Lillian Gilbreth's Psychology of Management (1914), Frank and Lillian Gilbreth's Applied motion study (1917), and Henry L. Gantt's charts (1910s). J. Duncan wrote the first college management-textbook in 1911. In 1912 Yoichi Ueno introduced Taylorism to Japan and became the first management consultant of the "Japanese-management style". His son Ichiro Ueno pioneered Japanese quality assurance. 

The first comprehensive theories of management appeared around 1920. The Harvard Business School offered the first Master of Business Administration degree (MBA) in 1921. People like Henri Fayol (1841–1925) and Alexander Church (1866-1936) described the various branches of management and their inter-relationships. In the early-20th century, people like Ordway Tead (1891–1973), Walter Scott (1869-1955) and J. Mooney applied the principles of psychology to management. Other writers, such as Elton Mayo (1880–1949), Mary Parker Follett (1868–1933), Chester Barnard (1886–1961), Max Weber (1864–1920), who saw what he called the "administrator" as bureaucrat, Rensis Likert (1903–1981), and Chris Argyris (born 1923) approached the phenomenon of management from a sociological perspective. 

Peter Drucker (1909–2005) wrote one of the earliest books on applied management: Concept of the Corporation (published in 1946). It resulted from Alfred Sloan (chairman of General Motors until 1956) commissioning a study of the organisation. Drucker went on to write 39 books, many in the same vein. 

H. Dodge, Ronald Fisher (1890–1962), and Thornton C. Fry introduced statistical techniques into management-studies. In the 1940s, Patrick Blackett worked in the development of the applied-mathematics science of operations research, initially for military operations. Operations research, sometimes known as "management science" (but distinct from Taylor's scientific management), attempts to take a scientific approach to solving decision-problems, and can apply directly to multiple management problems, particularly in the areas of logistics and operations.

Some of the more recent developments include the Theory of Constraints, management by objectives, reengineering, Six Sigma, the Viable system model, and various information-technology-driven theories such as agile software development, as well as group-management theories such as Cog's Ladder. 

As the general recognition of managers as a class solidified during the 20th century and gave perceived practitioners of the art/science of management a certain amount of prestige, so the way opened for popularised systems of management ideas to peddle their wares. In this context many management fads may have had more to do with pop psychology than with scientific theories of management. 

Business management includes the following branches:

1. financial management
2. human resource management
3. information technology management (responsible for management information systems)
4. marketing management
5. operations management and production management
6. strategic management

21st century

In the 21st century observers find it increasingly difficult to subdivide management into functional categories in this way. More and more processes simultaneously involve several categories. Instead, one tends to think in terms of the various processes, tasks, and objects subject to management.

Branches of management theory also exist relating to nonprofits and to government: such as public administration, public management, and educational management. Further, management programs related to civil-society organizations have also spawned programs in nonprofit management and social entrepreneurship.

Note that many of the assumptions made by management have come under attack from business-ethics viewpoints, critical management studies, and anti-corporate activism.

As one consequence, workplace democracy (sometimes referred to as Workers' self-management) has become both more common and more advocated, in some places distributing all management functions among workers, each of whom takes on a portion of the work. However, these models predate any current political issue, and may occur more naturally than does a command hierarchy. All management embraces to some degree a democratic principle—in that in the long term, the majority of workers must support management. Otherwise, they leave to find other work or go on strike. Despite the move toward workplace democracy, command-and-control organization structures remain commonplace as de facto organization structures. Indeed, the entrenched nature of command-and-control is evident in the way that recent layoffs have been conducted with management ranks affected far less than employees at the lower levels. In some cases, management has even rewarded itself with bonuses after laying off lower-level workers.

According to leadership-academic Manfred F.R. Kets de Vries, a contemporary senior-management team will almost inevitably have some personality disorders.

Topics

Basics

According to Fayol, management operates through five basic functions: planning, organizing, coordinating, commanding, and controlling.

• Planning: Deciding what needs to happen in the future and generating plans for action (deciding in advance).
• Organizing (or staffing): Making sure the human and nonhuman resources are put into place.
• Coordinating: Creating a structure through which an organization's goals can be accomplished.
• Commanding (or leading): Determining what must be done in a situation and getting people to do it.
• Controlling: Checking progress against plans.

Basic roles

• Interpersonal: roles that involve coordination and interaction with employees

Figurehead, leader

• Informational: roles that involve handling, sharing, and analyzing information

Nerve centre, disseminator

• Decision: roles that require decision-making

Entrepreneur, negotiator, allocator

Skills

Management skills include:

• political: used to build a power base and to establish connections
• conceptual: used to analyze complex situations
• interpersonal: used to communicate, motivate, mentor and delegate
• diagnostic: ability to visualize appropriate responses to a situation
• leadership: ability to lead and to provide guidance to a specific group
• technical: expertise in one's particular functional area.
• behavioral: perception towards others.

Implementation of policies and strategies

• All policies and strategies must be discussed with all managerial personnel and staff.
• Managers must understand where and how they can implement their policies and strategies.
• A plan of action must be devised for each department.
• Policies and strategies must be reviewed regularly.
• Contingency plans must be devised in case the environment changes.
• Top-level managers should carry out regular progress assessments.
• The business requires team spirit and a good environment.
• The missions, objectives, strengths and weaknesses of each department must be analyzed to determine their roles in achieving the business's mission.
• The forecasting method develops a reliable picture of the business' future environment.
• A planning unit must be created to ensure that all plans are consistent and that policies and strategies are aimed at achieving the same mission and objectives.

Policies and strategies in the planning process

• They give mid and lower-level managers a good idea of the future plans for each department in an organization.
• A framework is created whereby plans and decisions are made.
• Mid and lower-level management may add their own plans to the business's strategies.

Levels

Most organizations have three management levels: first-level, middle-level, and top-level managers. First-line managers are the lowest level of management and manage the work of nonmanagerial individuals who are directly involved with the production or creation of the organization's products. First-line managers are often called supervisors, but may also be called line managers, office managers, or even foremen. Middle managers include all levels of management between the first-line level and the top level of the organization. These managers manage the work of first-line managers and may have titles such as department head, project leader, plant manager, or division manager. Top managers are responsible for making organization-wide decisions and establishing the plans and goals that affect the entire organization. These individuals typically have titles such as executive vice president, president, managing director, chief operating officer, chief executive officer, or chairman of the board.

These managers are classified in a hierarchy of authority, and perform different tasks. In many organizations, the number of managers in every level resembles a pyramid. Each level is explained below in specifications of their different responsibilities and likely job titles.

Top

The top or senior layer of management consists of the board of directors (including non-executive directors and executive directors), president, vice-president, CEOs and other members of the C-level executives. Different organizations have various members in their C-suite, which may include a Chief Financial Officer, Chief Technology Officer, and so on. They are responsible for controlling and overseeing the operations of the entire organization. They set a "tone at the top" and develop strategic plans, company policies, and make decisions on the overall direction of the organization. In addition, top-level managers play a significant role in the mobilization of outside resources. Senior managers are accountable to the shareholders, the general public and to public bodies that oversee corporations and similar organizations. Some members of the senior management may serve as the public face of the organization, and they may make speeches to introduce new strategies or appear in marketing.

The board of directors is typically primarily composed of non-executives who owe a fiduciary duty to shareholders and are not closely involved in the day-to-day activities of the organization, although this varies depending on the type (e.g., public versus private), size and culture of the organization. These directors are theoretically liable for breaches of that duty and typically insured under directors and officers liability insurance. Fortune 500 directors are estimated to spend 4.4 hours per week on board duties, and median compensation was $212,512 in 2010. The board sets corporate strategy, makes major decisions such as major acquisitions, and hires, evaluates, and fires the top-level manager (Chief Executive Officer or CEO). The CEO typically hires other positions. However, board involvement in the hiring of other positions such as the Chief Financial Officer (CFO) has increased. In 2013, a survey of over 160 CEOs and directors of public and private companies found that the top weaknesses of CEOs were "mentoring skills" and "board engagement", and 10% of companies never evaluated the CEO. The board may also have certain employees (e.g., internal auditors) report to them or directly hire independent contractors; for example, the board (through the audit committee) typically selects the auditor. 

Helpful skills of top management vary by the type of organization but typically include a broad understanding of competition, world economies, and politics. In addition, the CEO is responsible for implementing and determining (within the board's framework) the broad policies of the organization. Executive management accomplishes the day-to-day details, including: instructions for preparation of department budgets, procedures, schedules; appointment of middle level executives such as department managers; coordination of departments; media and governmental relations; and shareholder communication.

Middle

Consist of general managers, branch managers and department managers. They are accountable to the top management for their department's function. They devote more time to organizational and directional functions. Their roles can be emphasized as executing organizational plans in conformance with the company's policies and the objectives of the top management, they define and discuss information and policies from top management to lower management, and most importantly they inspire and provide guidance to lower level managers towards better performance.

Middle management is the midway management of a categorized organization, being secondary to the senior management but above the deepest levels of operational members. An operational manager may be well-thought-out by middle management, or may be categorized as non-management operate, liable to the policy of the specific organization. Efficiency of the middle level is vital in any organization, since they bridge the gap between top level and bottom level staffs. 

Their functions include:

• Design and implement effective group and inter-group work and information systems.
• Define and monitor group-level performance indicators.
• Diagnose and resolve problems within and among work groups.
• Design and implement reward systems that support cooperative behavior. They also make decision and share ideas with top managers.

Lower

Lower managers include supervisors, section leaders, forepersons and team leaders. They focus on controlling and directing regular employees. They are usually responsible for assigning employees' tasks, guiding and supervising employees on day-to-day activities, ensuring the quality and quantity of production and/or service, making recommendations and suggestions to employees on their work, and channeling employee concerns that they cannot resolve to mid-level managers or other administrators. First-level or "front line" managers also act as role models for their employees. In some types of work, front line managers may also do some of the same tasks that employees do, at least some of the time. For example, in some restaurants, the front line managers will also serve customers during a very busy period of the day.

Front-line managers typically provide:

• Training for new employees
• Basic supervision
• Motivation
• Performance feedback and guidance

Some front-line managers may also provide career planning for employees who aim to rise within the organization.

Training

Colleges and universities around the world offer bachelor's degrees, graduate degrees, diplomas and certificates in management, generally within their colleges of business, business schools or faculty of management but also in other related departments. In the 2010s, there has been an increase in online management education and training in the form of electronic educational technology ( also called e-learning). Online education has increased the accessibility of management training to people who do not live near a college or university, or who cannot afford to travel to a city where such training is available. 

While some professions require academic credentials in order to work in the profession (e.g., law, medicine, engineering, which require, respectively the Bachelor of Law, Doctor of Medicine and Bachelor of Engineering degrees), management and administration positions do not necessarily require the completion of academic degrees. Some well-known senior executives in the US who did not complete a degree include Steve Jobs, Bill Gates and Mark Zuckerberg. However, many managers and executives have completed some type of business or management training, such as a Bachelor of Commerce or a Master of Business Administration degree. Some major organizations, including companies, not-for-profit organizations and governments, require applicants to managerial or executive positions to hold at minimum Bachelor's degree in a field related to administration or management, or in the case of business jobs, a Bachelor of Commerce or a similar degree.

United States of America

Undergraduate

At the undergraduate level, the most common business program is the Bachelor of Commerce (B.Com.). However to manage technological areas, you need an undergraduate degree in a STEM area as preferred to Defense Acquisition University guidelines. This is typically a four-year program that includes courses that give students an overview of the role of managers in planning and directing within an organization. Course topics include accounting, financial management, statistics, marketing, strategy, and other related areas. There are many other undergraduate degrees that include the study of management, such as Bachelor of Arts degrees with a major in business administration or management and Bachelor of Public Administration (B.P.A), a degree designed for individuals aiming to work as bureaucrats in the government jobs. Many colleges and universities also offer certificates and diplomas in business administration or management, which typically require one to two years of full-time study.

Graduate

At the graduate level students aiming at careers as managers or executives may choose to specialize in major subareas of management or business administration such as entrepreneurship, human resources, international business, organizational behavior, organizational theory, strategic management, accounting, corporate finance, entertainment, global management, healthcare management, investment management, sustainability and real estate. A Master of Business Administration (MBA) is the most popular professional degree at the master's level and can be obtained from many universities in the United States. MBA programs provide further education in management and leadership for graduate students. Other master's degrees in business and management include Master of Management (MM) and the Master of Science (M.Sc.) in business administration or management, which is typically taken by students aiming to become researchers or professors. There are also specialized master's degrees in administration for individuals aiming at careers outside of business, such as the Master of Public Administration (MPA) degree (also offered as a Master of Arts in Public Administration in some universities), for students aiming to become managers or executives in the public service and the Master of Health Administration, for students aiming to become managers or executives in the health care and hospital sector.

Management doctorates are the most advanced terminal degrees in the field of business and management. Most individuals obtaining management doctorates take the programs to obtain the training in research methods, statistical analysis and writing academic papers that they will need to seek careers as researchers, senior consultants and/or professors in business administration or management. There are three main types of management doctorates: the Doctor of Management (D.M.), the Doctor of Business Administration (D.B.A.), and the Ph.D. in Business Administration or Management. In the 2010s, doctorates in business administration and management are available with many specializations.

Good practices

While management trends can change so fast, the long term trend in management has been defined by a market embracing diversity and a rising service industry. Managers are currently being trained to encourage greater equality for minorities and women in the workplace, by offering increased flexibility in working hours, better retraining, and innovative (and usually industry-specific) performance markers. Managers destined for the service sector are being trained to use unique measurement techniques, better worker support and more charismatic leadership styles. Human resources finds itself increasingly working with management in a training capacity to help collect management data on the success (or failure) of management actions with employees.

Evidence-based management

Evidence-based management is an emerging movement to use the current, best evidence in management and decision-making. It is part of the larger movement towards evidence-based practices. Evidence-based management entails managerial decisions and organizational practices informed by the best available evidence. As with other evidence-based practice, this is based on the three principles of: 1) published peer-reviewed (often in management or social science journals) research evidence that bears on whether and why a particular management practice works; 2) judgement and experience from contextual management practice, to understand the organization and interpersonal dynamics in a situation and determine the risks and benefits of available actions; and 3) the preferences and values of those affected.

Law of the sea

From Wikipedia, the free encyclopedia

Mare Liberum (1609) by Hugo Grotius is one of the earliest works on law of the sea.

 

Law of the Sea is a body of international law governing the rights and duties of states in maritime environments. It concerns matters such as navigational rights, sea mineral claims, and coastal waters jurisdiction. 

While drawn from a number of international customs, treaties, and agreements, modern law of the sea derives largely from the United Nations Convention on the Law of the Sea (UNCLOS), effective since 1994, which is generally accepted as a codification of customary international law of the sea, and is sometimes regarded as the "constitution of the oceans".

Law of the sea is the public law counterpart to admiralty law (also known as maritime law), which applies to private maritime issues, such as the carriage of goods by sea, rights of salvage, ship collisions, and marine insurance.

History

Among the earliest examples of legal codes concerning maritime affairs is the Byzantine Lex Rhodia, promulgated between 600 and 800 C.E. to govern trade and navigation in the Mediterranean. Maritime law codes were also created during the European Middle Ages, such as the Rolls of Oléron, which drew from Lex Rhodia, and the Laws of Wisby, enacted among the mercantile city-states of the Hanseatic League. 

However, the earliest known formulation of public international law of the sea was in 17th century Europe, which saw unprecedented navigation, exploration, and trade across the world's oceans. Portugal and Spain led this trend, staking claims over both the land and sea routes they discovered. Spain considered the Pacific Ocean a mare clausum—literally a "closed sea" off limits to other naval powers—in part to protect its possessions in Asia. Similarly, as the only known entrance from the Atlantic, the Strait of Magellan was periodically patrolled by Spanish fleets to prevent entrance by foreign vessels. The papal bull Romanus Pontifex (1455) recognized Portugal's exclusive right to navigation, trade, and fishing in the seas near discovered land, and on this basis the Portuguese claimed a monopoly on East Indian trade, prompting opposition and conflict from other European naval powers. 

Amid growing competition over sea trade, Dutch jurist and philosopher Hugo Grotius—considered the father of international law generally—wrote Mare Liberum (The Freedom of the Seas), published in 1609, which set forth the principle that the sea was international territory and that all nations were thus free to use it for trade. He premised this argument on the idea that "every nation is free to travel to every other nation, and to trade with it." Thus, there was a right to innocent passage over land and a similar right of innocent passage at sea. Grotius observed that unlike land, on which sovereigns could demarcate their jurisdiction, the sea was akin to air, a common property of all:

The air belongs to this class of things for two reasons. First, it is not susceptible of occupation; and second its common use is destined for all men. For the same reasons the sea is common to all, because it is so limitless that it cannot become a possession of any one, and because it is adapted for the use of all, whether we consider it from the point of view of navigation or of fisheries.

Writing in response to Grotius, the English jurist John Selden argued in Mare Clausum that the sea was as capable of appropriation by sovereign powers as terrestrial territory. Rejecting Grotius' premise, Selden claimed there was no historical basis for the sea to be treated differently than land, nor was there anything inherent in the nature of the sea that precluded states from exercising dominion over parts of it. In essence, international law could evolve to accommodate the emerging framework of national jurisdiction over the sea. 

"Mare clausum" in the European Age of Discovery.

 

As a growing number of nations began to expand their naval presence across the world, conflicting claims over the open sea mounted. This prompted maritime states to moderate their stance and to limit the extent of their jurisdiction towards the sea from land. This was aided by the compromise position presented by Dutch legal theorist Cornelius Bynkershoek, who in De dominio maris (1702), established the principle that maritime dominion was limited to the distance within which cannons could effectively protect it.

Grotius' concept of "freedom of the seas" became virtually universal through the 20th century, following the global dominance of European naval powers. National rights and jurisdiction over the seas were limited to a specified belt of water extending from a nation's coastlines, usually three nautical miles (5.6 km), according to Bynkershoek's "cannon shot" rule. Under the mare liberum principle, all waters beyond national boundaries were considered international waters: Free to all nations, but belonging to none of them.

In the early 20th century, some nations expressed their desire to extend national maritime claims, namely to exploit mineral resources, protect fish stocks, and enforce pollution controls. To that end, in 1930, the League of Nations called conference at The Hague, but no agreements resulted. By the mid 20th century, technological improvements in fishing and oil exploration expanded the nautical range in which countries could detect and exploit natural resources. This prompted United States President Harry S. Truman in 1945 to extend American jurisdiction to all the natural resources of its continental shelf, well beyond the territorial waters of the country. Truman's proclamation cited the customary international law principle of a nation's right to protect its natural resources. Other nations quickly followed suit: Between 1946 and 1950, Chile, Peru, and Ecuador extended their rights to a distance of 200 nautical miles (370 km) to cover their Humboldt Current fishing grounds.

UN Convention of the Law of the Sea

Maritime zones are a core component of modern law of the sea.

 

The first attempt to promulgate and codify a comprehensive law of the sea was in the 1950s, shortly after the Truman proclamation on the continental shelf. In 1956, the United Nations held its first Conference on the Law of the Sea (UNCLOS I) in Geneva, Switzerland, which resulted in four treaties concluded in 1958:

• Convention on the Territorial Sea and Contiguous Zone, entry into force: 10 September 1964
• Convention on the Continental Shelf, entry into force: 10 June 1964
• Convention on the High Seas, entry into force: 30 September 1962
• Convention on Fishing and Conservation of Living Resources of the High Seas, entry into force: 20 March 1966

The Convention on the Continental Shelf effectively codified Truman's proclamation as customary international law. While UNCLOS I was widely considered a success, it left open the important issue of the extent of territorial waters. In 1960, the UN held a second Conference on the Law of the Sea ("UNCLOS II"), but this did not result in any new agreements. The pressing issue of varying claims of territorial waters was raised at the UN in 1967 by Malta, prompting the 1973 a third United Nations Conference on the Law of the Sea in New York City. In an attempt to reduce the possibility of groups of nation-states dominating the negotiations, the conference used a consensus process rather than majority vote. With more than 160 nations participating, the conference lasted until 1982, resulting in the UN Convention of the Law of the Sea, also known as the Law of the Sea Treaty, which defines the rights and responsibilities of nations in their use of the world's oceans. 

UNCLOS introduced a number of provisions, of which the most significant concerned navigation, archipelagic status and transit regimes, exclusive economic zones (EEZs), continental shelf jurisdiction, deep seabed mining, the exploitation regime, protection of the marine environment, scientific research, and settlement of disputes. It also set the limit of various areas, measured from a carefully defined sea baseline. 

The Convention also codified freedom of the sea, explicitly providing that the oceans are open to all states, with no state being able to subject any part to its sovereignty. Consequently, state parties cannot unilaterally extend their sovereignty beyond their EEZ, the 200 nautical miles in which that state has exclusive rights to fisheries, minerals, and sea-floor deposits. "Innocent passage" is permitted through both territorial waters and the EEZ, even by military vessels, provided they do no harm to the country or break any of its laws.

Parties to the United Nations Convention on the Law of the Sea (as of June 2019).

 

The convention came into force on 16 November 1994, one year after it was ratified by the 60th state, Guyana; the four treaties concluded in the first UN Conference in 1956 were consequently superseded. As of June 2019, UNCLOS has been ratified by 168 states. Many of the country that have not ratified the treaty, such as the U.S., nonetheless recognize its provisions as reflective of international customary law. Thus, it remains the most widely recognized and followed source of international law with respect to the sea.

Between 2018 and 2020, there is a conference on a possible change to the law of the sea regarding conservation and sustainable use of marine biological diversity of areas beyond national jurisdiction (General Assembly resolution 72/249).

Recognition and enforcement of law of the sea

Although UNCLOS was created under the auspices of the UN, the organization has no direct operational role in its implementation. However, a specialized agency of the UN, the International Maritime Organization, plays a role in monitoring and enforcing certain provisions of the Convention, along with the intergovernmental International Whaling Commission, and the International Seabed Authority (ISA), which was established by the Convention to organize, regulate and control all mineral-related activities in the international seabed area beyond territorial limits. 

UNCLOS established the International Tribunal for the Law of the Sea (ITLOS), based in Hamburg, Germany, to adjudicate all disputes concerning the interpretation or application of the Convention (subject to the provisions of Article 297 and to the declarations made in accordance with article 298 of the Convention). Its 21 judges are drawn from a wide variety of nations. Because the EEZ is so extensive, many ITLOS cases concern competing claims over the ocean boundaries between states As of 2017, ITLOS had settled 25 cases.

Maritime Law

Law of the Sea should be distinguished from maritime law, which concerns maritime issues and disputes among private parties, such as individuals, international organizations, or corporations. However, the International Maritime Organisation, a UN agency that plays a major role in implementing law of the sea, also helps to develop, codify, and regulate certain rules and standards of maritime law.