...Are Over the past 15 to 20 years more and more CEOs have been scrutinized and the typical CEO's pay is largely driven by market factors. CEOs pay is strongly related to stock performance. Because of more bureaucracy, the CEO's job has become increasingly more difficult over the past decade. In fact some would even argue that they are not paid enough and should be paid more. CEOs are being scrutinized more than ever. Some have taken on a celebrity persona such as Steve Jobs, Bill Gates, and Jack Welch. The fact of the matter is their pay is driven by market forces. You don't really hear of athletes being scrutinized like CEOs. However, since the collapse of companies such as Enron, WorldCom, and Tyco, their exposure has put them in the forefront of our society. CEOs are not unique. Other industries with similar backgrounds have earned just as well in the last decade. This includes top lawyers, athletes and top financial executives. Kaplan contends that it would be difficult to understand how pay increase could be driven by non-market forces when pay to athletes, lawyers and other groups have increased just as much. Their pay is strongly related to stock performance. Kaplan's recent analysis of CEO pays in a given year found that CEOs in the top 20% of actual pay generate stock returns 60% greater. This is greater than other firms in their industries over the past three years. In addition, CEOs from firms in the bottom 20% of actual pay underperformed...
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...The Debate over CEO Compensation Analyzing Managerial Decisions: The Debate over CEO Compensation 1. Do you think the fact that most American CEOs are paid so much more than rank-and-file employees suggests CEOs are overpaid? Explain. I do not believe that just because American CEOs are paid much more than rank-and-file employees suggest that they are overpaid. Many CEOs whose salaries and compensation packages are discussed in the news are the CEOs from the largest American corporations and likely do not represent the average American CEO. Also, many times when CEO payouts are discussed in the news it is not a one year payout but instead a multi-year payout. Plus, many companies need to pay high salaries and incentives to attract successful CEOs from other companies. This alone drives the overall salary and compensation packages for CEOs but does not necessary point to them being overpaid. 2. Japanese CEOs generally receive much lower levels of compensation than CEOs in the United States. Does this imply that U.S. CEOs are overpaid? I do not believe that just because Japanese CEOs receive much lower salaries than United States CEOs implies that they are overpaid. I worked for Honda and one item that I learned in the past years is that there are large differences between the American and Japanese cultures. The Japanese very much frown upon employees that leave their companies. Japanese employees barely ever transfer companies unlike American...
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...Kevin Gingles Are US CEO’s overpaid? The money of a CEO could go towards longevity of the company because there is a lack of innovation in majority of today’s companies and companies are forced to close operations due to poor business performance. Intro paragraph The intro paragraph will bring the topic out to light detailing a brief look into the research. The intro will provide reasoning to support the high salaries of past and present CEO’s and how the company performed. Body paragraphs Finding evidence and facts I will back my thesis with strong support on why I feel top level managers are overpaid. These paragraphs will give a rich history of the average CEO and how much they are being paid including all the unnecessary perks CEO’s receive. Also I will discuss some top companies closures and proof of low customer satisfaction of services. Another key factor in marketing and brand recognition, this topic will help me discuss how the customers perceive a brand and customer expectations. Conclusion This paragraph will be to wrap the paper up and bring the findings together. Returning to my original attention getter the research paper will close on a strong ending thoroughly explain why US CEO’s are overpaid. Potential sources http://www.theatlantic.com/business/archive/2013/06/ceos-now-earn-273-times-the-average-workers-pay-should-you-be-mad/277284/ http://www.nytimes.com/2011/10/01/business/lets-stop-rewarding-failed-ceos-common-sense.html?pagewanted=all&_r=0 ...
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...overpayment have been identified: CEOs with too much power, inattentive boards of directors, conflicts of interest by compensation consultants, the use of stock options--the list goes on. Some studies show the average CEO was paid $10 million to $15 million in 2005. This includes their salary, bonus, stock option gains, stock grants, and various executive benefits and perquisites. Are rank-and-file workers underpaid? Everyone, I suppose, feels a little underpaid. Some data sources indicate the average American worker was paid about $40,000 in 2005. Anyone working in the technology sector knows this average pay level would barely hire a below-average administrative assistant in any of the technology hot spots in the U.S. And the average CEO pay has been earned by more than a few average technology company workers who had stock options in the right company at the right time. So, are CEOs overpaid compared to average workers? If you read the media stories this year, and in recent years, you might think that they are. Some interest groups have determined that the ratio of CEO pay to average worker pay is an appropriate measure of this problem. Some Web sites allow you to calculate how underpaid you are compared with your CEO. According to these sources, chief executive pay is between 250 and 500 times that of the average worker. Who are these CEOs who are supposedly paid hundreds of times more than the average worker? In most analyses, they are CEOs managing the largest public companies...
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...Executive Compensation: Do you get what you pay for? Some would say that top executives are not overpaid. This side of the argument is based on the premise that top executives are paid well, but not overpaid. Many people see CEO pay packages but do not look further to see that a CEO's pay is not the whole story. What are the factors that might support a high executive compensation package? It is usually the most extreme cases of overpay that hit the press. Proponents of the argument that top executives are not overpaid state that most of the complaints about executive compensation center around extreme cases of overpay, and such cases blind us to the fact that the majority of executives are paid fairly. One example of this is the case of Lee Raymond, former head of Exxon Mobile. When he retired from the company in 2006, the price of gasoline at the pump was high, $3 per gallon, much to the consternation of consumers. Yet Exxon Mobile rewarded Raymond with a record retirement package--a "golden parachute," as it is known--to the tune of $400 million. The combination of exorbitant CEO pay and painfully high gas prices rubbed most observers the wrong way. A similar situation occurred in the case of Robert Nardelli of Home Depot. When Nardelli retired in 2007 with a pay package worth $210 million, the company he headed had just gone through several straight years of relatively poor performance. People wanted to know why the chief executive received such an exceptional payout...
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...an understatement. These people are tremendously overpaid, and make up only 1% of the U.S population. Let’s first take a look at the definition of a “CEO”. In every definition that I’ve come across, the word “manager” is apparent. In essence, a CEO is merely a high-ranking manager in most cases. There are exceptions where the CEO is the entrepreneur himself for example Ralph Lauren who employs over 24,000 people and earned his salary. Other than those few, CEO’s get paid massive amounts of money, but when asked why they deserve so much, there isn’t a clear answer. When Americans learn that CEOs are compensated in the tens of millions of dollars, one can only wonder how much our local teachers or firemen make and what are the executives doing to earn such large salaries. What’s even harder to understand is these CEOs make so much more money than the men and women serving our and risking their lives. The annual uproar about CEO pay wouldn’t be as troubling if the salary gap between them and the rest of the nation wasn’t so outrageous. Why should the same people responsible for trillions of dollars in economic losses be awarded $18 million in bonuses? The amount of money made on Wall Street, doesn’t compute to the Americans on Main Street. In an attempt to understand why CEOs are compensated so highly, we might want to take a look at what exactly is required of them. Everything within the company falls on the shoulders of the CEO. This includes all the decision making and subsequently...
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...To what extent does executive pay influence company performance? There has been widespread controversy in recent years about the amount of compensation CEO’s receive. CEO’s financial compensation packages were largely structured to incentivize risk taking in order to increase shareholder wealth (“Restraints on Executive Pay”, 2009). Yet, the 2008 financial crisis was mostly characterized by declining levels of company performance largely due to the increase of risk afforded to CEO’s by the attractiveness of lucrative executive incentives to perform. This essay argues that executive pay and its influence on company performance is both controversial and complex and concludes that executive pay has minimal influence on company performance and, when it does have influence, it tends to be negative. It is widely believed that companies and their shareholders suffer from poor performance unless the importance of incentives for executives – most notably through monetary and stock compensation – is realized (Jensen and Murphy 1990). The notion that the level and performance sensitivity of pay affects the quality of managers an organization can attract in a competitive labor market for executives seems, on the surface, uncontroversial. However, whether compensation policy is truly “one of the most important factors in an organization’s success” (p.139), as Jensen and Murphy (1990) assert needs further examination A series of empirical studies from a variety of industry, national...
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...There has been widespread controversy in recent years about the amount of compensation CEO’s receive. CEO’s financial compensation packages were largely structured to incentivize risk taking in order to increase shareholder wealth (“Restraints on Executive Pay”, 2009). Yet, the 2008 financial crisis was mostly characterized by declining levels of company performance largely due to the increase of risk afforded to CEO’s by the attractiveness of lucrative executive incentives to perform. This essay argues that executive pay and its influence on company performance is both controversial and complex and concludes that executive pay has minimal influence on company performance and, when it does have influence, it tends to be negative. It is widely believed that companies and their shareholders suffer from poor performance unless the importance of incentives for executives – most notably through monetary and stock compensation – is realized (Jensen and Murphy 1990). The notion that the level and performance sensitivity of pay affects the quality of managers an organization can attract in a competitive labor market for executives seems, on the surface, uncontroversial. However, whether compensation policy is truly “one of the most important factors in an organization’s success” (p.139), as Jensen and Murphy (1990) assert needs further examination A series of empirical studies from a variety of industry, national, and time settings present evidence contrary to the conventional...
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...I think that people consider CEO compensation to be unfair because they simply see a large compensation. However, when determining if CEO compensation is fair I think there is more to be considered. People unaffiliated with the company are not going to have an unbiased opinion. Therefore, we need to look to those affiliated with the company of interest. Research shows that 93% of companies in the Russell 3000 index approved of their CEO's pay. (Feloni 2014) Also, we should consider that only 20% of CEO compensation is base pay, the rest is based on the performance of the company. Therefore, the majority of their compensation is contingent on working hard to see their company succeed. A paper by Kaplan and Joshua Rauh of Stanford found that the highest paid CEO’s also generated higher stock returns. “The highest-paid CEOs in terms of realized pay—the top 20% out of 1,700 firms—generated three-year stock returns that were 60% higher than those of other firms in their industries.” (Sumo and Weitzman 2013) It should also be noted that the increase of current CEO’s compensation packages are reflecting US stock highs. Finally, CEO’s are appointed. They have to climb the corporate ladder and have adequate qualifications. Therefore, it is not accurate or fair to compare their compensation to an average worker’s compensation. If you compare a CEO’s pay with other high –earning professionals their pay is reasonable. Steven Neil Kaplan, Neubauer Family Distinguished Service...
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...Bankers have been compensated very generously over the years and there were numerous justifications made for it but through research it has been shown that bankers have been overpaid. Besides James Gorman, Bank executives defended high pay as necessary for retaining key staff. Banks fear that if pay decreases as revenue decreases then valuable staff members will leave the firm. James Morgan, CEO of Morgan Stanley, stated “Compensation is way too high. As a shareholder I’m sympathetic to the shareholder view that the industry is overpaid”. People within the banking industry believe that the industry is overcompensated. The firm’s obligation is to provide appropriate shareholder returns and with revenues decreasing and total compensation rising it is becoming increasingly difficult to raise shareholder returns. In recent news, Deutsche Bank planned on lowering pay and cutting bonuses. UBS is “capping bonuses and linking them to bank’s profitability”. This latest move by the bank was ignited because of the pressure from shareholders who believe that bankers are overcompensated. In order to increase shareholder returns, jobs need to be cut and this is because compared to the revenue of the banks compensation is too high. The pay/revenue ratio needs to be lowered and Deutsche Bank has acted on it by paying the top 150 managers the deferred part of its bonus only after five years. Right now, the total compensation for many bankers does not reflect their contribution to the company...
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...Session 9 Samstag, 6. September 2014 13:30 Session 9 Prep Topic: CEO compensation Reading • Résumé Pedro Matos, Darden Professor • Chapter 7 in Corporate Governance • Chapter 7 in Boards That Deliver • Bargain Bosses, American chief executives are not overpaid, The Economist • How to get paid like a U.S. CEO, Fortune • Executive Compensation Corporate Governance: Chapter 7 - CEO Compensation • Norms for CEO compensation ○ Proxy statements provide information on executive compensation and are distributed ahead of shareholder meetings ○ There is a positive correlation between firm size and total CEO compensation ○ The higher the CEO total compensation, the larger the percentage of non-cash compensation (bonus) • The Goal of executive compensation • What is good performance? ○ Current circumstances, its goals and the execution of its strategies ○ Compensation should include short- and long-term plans ○ Long-term: achieving strategic goals (e.g. financial) ○ Compensation/performance should be benchmarked against peers • Building a compensation plan ○ Peer comparison is the beginning, but should not be the only determinant of CEO compensation ○ Gradual rise of CEO compensation is due to the matching with competitive compensation as soon as one competitor increases compensation • Compensation mix ○ Base salary Have average base salaries with at-risk copmensation when performance is superior ○ Fringe Benefits 30-50% of base salary Medical and life insurance premiums,...
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...the CEO of NOL, would you buy APL? Neptune Orient Lines (NOL) is a shipping company established in Singapore since 1967. Thanks to the Asia’s and Singapore’s fast economic growth and to be present in the busiest shipping routes in the world, the company has grown very quick. However since 1990s, NOL has started to suffer due to a slowdown of the regional economic growth, excess capacity in the shipping industry, many competitors on this market and declining shipping rates. In 1996, the company has seen his net profit decreasing by 54% but the results seem to be worse. In order to change this bad situation happening to NOL, the company decided in April 1997 to acquire APL Company, leader in the US shipping line. APL was the oldest and the second largest shipping line in the USA. The company had the largest freight rail services in North America. Despite a smaller fleet than NOL, APL had higher revenue, profits, shipping volumes and the company was good in the innovation part. The acquisition of APL by NOL seems to be profitable for the Singapore shipping Company. But was it the good decision taken by NOL Company to acquire APL Company? If I was the CEO of Neptune Orient Lines Company, I would buy APL Company. Merger and Acquisition strategies had become more and more popular since 1990s. Indeed, using these strategies can help firms to face crisis. That is why NOL decided to use the acquisition strategy in order to overtake the problems that the company had. As the CEO of Neptune...
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...Are Professional Athletes Overpaid? Have you ever considered how much money does an average person need to be able to have food three times a day, have a house, be able to send their children to school to get an education and even have a car? Realistically, all of this plus a little more can be done with an income of between $45,000 and $55,000 easily. For some reason, it was decided by us, people who labor is harder than the most, like janitors, factory workers, and even factory workers, should be paid less than someone that sits on a desk all day or someone that gets paid to play a game for living. Athletes today are the highest paid people in the world, with the exclusion of Donald Trump and Bill Gates. If you think about it, it is absurd to believe that someone is really worth millions of dollars and all they do is play a sport. Millions of people would do this for free if they had the chance. For that reason, I believe professional athletes are overpaid for many reasons. In USA Today Magazine, under section Your Life it says, “Although many professional athletes apparently still feel underpaid, just two percent of the public agrees, according to a survey conducted by Roper Starch Worldwide. In fact, the vast majority of Americans think athletes are overpaid.”(USA Today) This is ridiculous to hear for these athletes already making millions of dollars which is way more than they deserve. Also, in this article it states that professional athletes get paid what...
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...CASE STUDY: The Debate over CEO Compensation The most visible and highly paid person in most corporations is the chief executive officer (CEO). CEO compensation is particularly important to firms for three reasons. First, the compensation package is likely to be important in attracting and retaining good CEOs. Second, the form of the pay contract is likely to help determine whether the CEO focuses on value maximization or some other objective. Third, employees throughout the organization carefully follow their CEO’s pay. Important morale problems can occur when employees think that the CEO is overpaid. For instance, employees complain bitterly when they are asked to take pay cuts because the company is in trouble, yet at the same time the CEO gets a big raise. Controversy over CEO pay has increased substantially in recent years. One charge is that the level of CEO pay is too high. CEO pay is so huge that people don’t believe they deserve it. It is easy to pint to many ECOS who report compensation in the millions of dollars (reported compensation figures typically include salary and bonus payments, as well as gains from the exercise of stock options). Consider the following two examples. Investors were outraged when E Trade Group Inc. disclosed it had paid out a $77 million compensation package for CEO Christos M. Cotsakos in 2001- a year in which the financial-services company lost $242 million. When Cotsakos pledged later to return $21 million, the complaints...
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...the base salaries, they often get a compensation which is several times of their remuneration. According to CNBC, the average S&P 500 company CEO made 373 times the salary of the average production and non-supervisory worker in 2014, up from 331 times in 2013, according to the AFL-CIO. I would argue that executive pay will effect company performance a lot economically and socially. That kind of high payment could become a motivation for both executives and employees. Just as mentioned by Kubo (2005), in order to get as much pay as executives, employees are more willing to work hard and this is beneficial to the performance of the whole firm. He also showed the evidence from Jensen and Murphy that a high pay-performance sensitivity is better for the company. This means, driven by this kind of system, executives need to pay more attention and put more effort on their daily management, since the payment and the performance are related. Moreover, affected by the sense of equity, executives will see to improve the firm profitability (Fong, 2010). Talented individuals will be attracted to companies which are willing to pay more. And this would make the company more competitive than others. According to reasons above, a relative large amount of payment is instrumental in improving a company’s performance. For another, an overpaid executive would effect the company’s reputation and arise resentment among public. For instance, some company’s boards have little influence of executives...
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