...BACK ON TOP . . . OF CEO PAY Valerie Lieber MGT 2500 Human Resource Management February 11, 2015 INTRODUCTION Executive compensation has been at the forefront of discussion for a long period of time. Analyzed by academics, highlighted by the media, questioned by Congress, and scrutinized by the general public, the topic warrants much debate. In the 1990’s, total executive compensation increased substantially as companies began offering stock option programs; CEO’s of S&P 500 saw an average increase of 150%. While many top U.S. executives continued to receive enormous compensation options throughout the economic downturns of 2001 and 2008, none was more apparent than those in the automotive industry. While the big three, comprising of General Motors, Ford and Chrysler, were facing insurmountable debt and possibly bankruptcy, top executives were receiving some of the highest reparations ever experienced by directors of the companies. The case study presented in Managing Human Resources, Sixteenth Edition by Snell and Bohlander brings to mind the fact that during 2011, Ford CEO, Alan Mulally, received $53.5 million in stock awards. Many discussions can be derived from this statement. However, a basic understanding of modern corporate compensation structures must first be realized. Along with understanding these compensation structures, knowledge of the views on economic rent and optimal contracting must also be developed. Corporate Compensation Structures Corporate...
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...CEO Compensation: A Display of Obscenity For years, the great debate over whether or not CEOs are overpaid has raged on. Some studies show that the average CEO in the US was paid $10 million to $15 million 2005[1]. Proponents argue that this level of compensation (compensation is the total amount of remuneration received by an employee, including salary, stock options, etc.) is necessary to obtain and retain the world’s greatest leaders, whole opponents argue the exorbitant amounts aren’t justified. However, in a world where economies are hurting, it’s hard to justify why CEO compensation is rising, and fast. While CEOs are hard-working, intelligent leaders who’ve worked up to their position, the rising levels of CEO compensation are unreasonable and almost unethical given the current state of the world economy. To put it simply, CEOs are accountable for the performance of their company, but in the end they are still managers. It is important that as a society, CEO compensation is better controlled and more reasonably determined. The high CEO compensation that exists today outlines the disparity of income between CEOs and their workers. CEOs pulling in millions while their workers struggle to get by is increasingly becoming an issue. A CEO working for a Fortune 50 company makes 213 times the average worker[2]. For instance, the CEO of Walmart pulls in $16,270,000 while the median worker makes just $22,700[3]. One of the worst CEO-to-worker pay ratios is found at UnitedHealth...
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...The best form of compensation for corporate executive for optimizing long –run performance. Over the past two decades, there has been a stream of research which has focused on the characteristics of corporate executive and firm performance. This paper examines five academic and practitioner-theory focused research articles by (Baker et al, 2006; Babchuk et al, 2003; Hartzell et al, 2003; Murphy et al, 2003; and Kathleen et al, 1989) on the subject of corporate performance and compensation. The purpose of this essay is to advocate the best form of compensation for corporate executive for optimizing long –run performance based on the listed above studies. The components of CEO compensation are classified into four categories: salary, bonus, long-term incentive rewards (e.g., stock options), and benefits. In examining these components, equity based compensation and agency theory were employed and investigated as key factors of analysis. Many academic scholars advocate that the issues of CEO compensation have been a subject of debate and research, due to the agency problem. Thus, for the past three decades, issue of executive compensation was approached from the perspective of the principal-agent relationship. Agency problem, in the context of the five papers mentioned above ‘is the possibility of conflicts of interest between the shareholders and managers of a firm’. According to agency theory, each firm consists of principals (shareholders) and agents (managers)...
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...DETERMINANTS OF CEO COMPENSATION: EVIDENCE FROM MALAYSIAN BANKING INDUSTRY CHONG KOK CHIEK (AC082799) MUHAMMAD AZWAN BIN MOHD ARIFFIN (AC082868) SITI SUHANNA BINTI ABDUL GHANI (AC083010) BACHELOR OF ACCOUNTING (HONS.) COLLEGE OF BUSINESS MANAGEMENT AND ACCOUNTING UNIVERSITI TENAGA NASIONAL 2012 DECLARATION We hereby declare that this project is our original work except for quotations and citations which have been duly acknowledged and that it has not been previously and/or concurrently submitted for any other degree at Universiti Tenaga Nasional and/or other institutions. CHONG KOK CHIEK AC 082799 MUHAMMAD AZWAN MOHD ARIFFIN AC 082868 SITI SUHANNA ABDUL GHANI AC 083010 Date of submission: 13th August 2012 i ACKNOWLEGDEMENT We would like to express our sincere gratitude to our project supervisor, Mr. Wan Mohammad Taufik bin Wan Abdullah, lecturer of Department of Accounting of Universiti Tenaga Nasional, for his valuable advices and continuous guidance throughout the research process. Mr. Taufik spent a lot of time enlightening us on various issues, giving us a comprehensive view in the academic aspect via our meetings within his busy working schedule. It is our pleasure to have him as our project supervisor. Without his unconditional support and care, our project could not be finished effectively. He let us try different approaches with confidence in the process, assisting us to solve a lot of problems especially at the time when we did...
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... | | | Table of Contents 1. Introduction 3 2. Case of Bank of America CEO Compensation 3 3. Arguments on Steep Executive Compensation 4 4. Conclusion 6 References 6 1. Introduction In this period of severe economic recession in Europe and America, executive pay should be regulated to prevent executives paying themselves too much. This topic has been rising presently as due to recession and critical competition , the performance of multinational and large organization become Important to the stakeholders and also the heavy remuneration packages of top executives become objectionable. In view of the importance of this debate, following pages present the arguments on the validity and relevance of heavy remuneration of executives and their counter arguments. According to my analysis, the executive pay should be highly regulated by board of governors and other competent authorities to prevent the transfer of large sums to few executives’ accounts and to interconnect the pay and performance of these executives. 2. Case of Bank of America CEO Compensation The financial crisis of 2008 has affected the economic horizons of America very drastically. The damage to the financial market was serious that even large organizations like the Bank of America do not survive from...
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...1. Recently, the issue of CEO compensation has been a subject of contentious controversy. Heated discussions erupt surrounding the impacts of executive pay to company performance. Some parties claim that executive pay can avoid the agency problem, which refers to the possibility of conflicts of interest between the shareholders and managers of a firm (Amarjit Gill, Nahum Biger and Smita Bhutani, 2008), in order to align the interest of executive officers and company. However, some people reckon that such compensation cannot boost company’s performance since the increase in revenue of executive officers does not mean an increase in their working incentive. Executive pay is the combination of salaries, bonuses and shares. Under most circumstances, there should be a positive correlation between executive compensation and company performance. As a medium of transaction, money has a profound relation with quality of life and the vast majority yearn for earning a living wage. Hence, money is always deemed a motivation for enhancing workers’ performance. There is no doubt that most executive officers attempt to maximize their revenues when the policy of executive pay is implemented. However, whether they would put strenuous effort into the business, this remains a dubious, uncertain question. Some may still slack off at work due to some personal factors such as laziness and lack of devotion to the company. First of all, executive pay will lead to a rise in risky investments. As...
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...Compensation Final: Three Essays Mr. Music MGT 320 April 27, 2011 1) Essay Question # 2: Issues of CEO pay that managers need to understand. CEO Pay Overview It seems as though no matter how bad the economy gets or how poorly a company performs, the Chief Executive Officer (CEO) (and other top executives) always come out in the best possible position, especially with compensation. Besides lavish compensation packages and best possible amenities, the CEO’s generally enjoy large severance packages or “golden parachutes”. Severance packages are basically contractual deals between the CEO and the corporation that in case the CEO is terminated for some reason or leaves the company, he/she is entitled to a specific sum of money on departure. Golden parachute is a term used to describe rich severance pay packages which in addition offer cash bonuses, stock options and benefits – essentially a complete and wealthy severance pay package. (Carroll & Buchholtz, 2009) The purpose of these packages was logical for industries prone to mergers, acquisitions or failure – it would protect the CEO in case the company experiences any of the above. Nevertheless it increased the moral hazard problem and the principal-agent problem within organizations. Basically the rationale has a fallacy where it protects the CEO and his/her pay if the company should fail, merge or be acquired but it doesn’t protect the company if the CEO performs badly and decides to bail out when the company is taking...
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...FORDHAM UNIVERSITY SCHOOLS OF BUSINESS CEO-Director Connections and Corporate Fraud N.K. Chidambaran Simi Kedia Nagpurnanand R. Prabhala Working Paper 2010-009 Copyright © 2010 by N.K. Chidambaran, Simi Kedia, and Nagpurnanand R. Prabhala Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It may not be reproduced without permission of the copyright holders. Copies of working papers are available from the authors. Electronic copy available at: http://ssrn.com/abstract=1681472 CEO-Director Connections and Corporate Fraud∗ N. K. Chidambaran Simi Kedia Nagpurnanand R. Prabhala This Version: September 2010 JEL Classification: G30, G32, G34, G38 Chidambaran is at Fordham University (chidambaran@fordham.edu), Kedia is at Rutgers University (kedia@busness.rutgers.edu), and Prabhala is at the University of Maryland (prabhala@umd.edu). We thank Jonathan Karpoff and Jerry Martin for graciously sharing their data on frauds with us. We thank Benjamin Cole, Eli Fich, Shane Johnson, Lalitha Naveen, Howard Tuckman, Antoinette Schoar, Vijaya Venkatramani, Adam Yore, and seminar participants at Fordham University, London Business School, and 2010 Summer Research Conference at ISB for their comments. All errors remain ours. Chidambaran acknowledges support from a Fordham University Faculty Research Grant, Kedia acknowledges support from the Whitcomb Center, and Prabhala acknowledges support from the Center...
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...Introduction This paper is a based on a case study of Nike. The paper will be discussing legal and ethical analysis and how the impact the operational/ ethical issues of the organization, the paper shall also be discussing the contribution factors and how the company’s corporate culture may have helped to minimize the unethical behavior or actually contributed to/caused the unethical behavior. The paper is also going to provide ethical decision factors, which are going to address or going to be considered in resolving the legal/ethical issues identified within this case. And finally the paper is going to provide an action plan for each of the legal/ethical issues along with recommendations that company can take to help prevent these issues in the future. Nike is one of the famous franchises in the world that sells sportswear for all ages. But is mostly famous for their athlete shoes and apparel and Nike is also one of the major manufacturers of sport equipment as well. The slogan for Nike is “Just Do It”. Nike was founded in January 1962 in Oregon, United States by Philip Knight and Bill Bowerman. Nike has somewhere around 700 or more retail outlets spread all over the world, and has approximately 45 offices only outside the United States. And it employs 30,000 people all over the world. Nike had a revenue excess of $16 billion in 2007. Nike’s factories are mostly located in Asian countries like Pakistan, India, Malaysia, China, Indonesia, Philippines, Taiwan, Vietnam...
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...Shareholders Watchdog, Inc. 777 Wall Street New York, NY 10005 December 7, 2011 RE: Is CEO Compensation Fair? Dear employee, Accompanying this letter is our completed report that discusses the issue of the fairness of current CEO compensation. Although there are two sides of this argument, recent legislation and regulations for reform tend to support those who believe it is unfair. We have evaluated the current standards of CEO compensation and examined why both sides think they should prevail. There are some advantages that strongly support CEO’s huge salaries, including the following: * Provides incentives and motivates the CEO to obtain or surpass corporate objectives * Retains key-value leaders for the long-term, resulting in consistent corporate success * Creates a strong CEO confidence for him/her to reinvest in the corporation (bonds) Our overall research indicates that CEO compensation does not reflect actual performance in most cases. Many CEO’s are grossly over compensated (including stock options, bonuses, hedge funds, and other benefits). The “Golden Parachute” guarantee adds insult to injury. Based on our research, conducted from the UNLV Library periodicals database and online sources, we recommend the following: * Require corporations to adhere to sections 951, 953, 955 and 956 of the Dodd-Frank Bill * Maintain a collective (“Esprit de corps”) work force environment for all employees * Consult third party professional...
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...Average Chief Executive Officer (CEO) remuneration increased by 11.5% a year from 2006 to 2009. An average worker would take 8 years to earn what a CEO earns in a 3 month period (Theuissen, 2010). Globalisation, company acquisitions and mergers make businesses more complex and challenging to manage. Companies seek to recruit the best managers who demand higher pay (Templetion, 2007). The involvement of the compensation committee in the setting of the CEOs remuneration may contribute to the higher pay for executives (Reh, 200- ). South Africa has a high level of low skilled labour. Skilled workers are in high demand to drive economic growth. Also, as technology continues to advance, more skilled workers are recruited to operate the high tech machines and they demand higher wages (Sill, 2002). The low wage paid to average workers and the large gap between executive compensation and average workers can have negative emotional effects. It also creates tension between employers and employees which may result in external reactions (Mc Clelland, 2008). Creation of value framework for the remuneration of executives and improved wage structures for the average worker will help narrow the existing wage gap (ASA, 2010). 2. Introduction The widening gap between executive compensation and that of wage earners attract considerable debate in many parts of the world including South Africa. In a report, from 1978 to 2011 Chief Executive Officer (CEO) compensation in the US grew more than 725%...
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...Wilfrid Laurier University Scholars Commons @ Laurier Theses and Dissertations (Comprehensive) 2010 Three Essays in Corporate Governance Vishaal Rabindranauth Anand Baulkaran Wilfrid Laurier University Follow this and additional works at: http://scholars.wlu.ca/etd Part of the Management Sciences and Quantitative Methods Commons Recommended Citation Baulkaran, Vishaal Rabindranauth Anand, "Three Essays in Corporate Governance" (2010). Theses and Dissertations (Comprehensive). Paper 1121. This Dissertation is brought to you for free and open access by Scholars Commons @ Laurier. It has been accepted for inclusion in Theses and Dissertations (Comprehensive) by an authorized administrator of Scholars Commons @ Laurier. For more information, please contact scholarscommons@wlu.ca. 1*1 Library and Archives Canada Bibliotheque et Archives Canada Published Heritage Branch Direction du Patrimoine de I'edition 395 Wellington Street Ottawa ON K1A 0N4 Canada 395, rue Wellington Ottawa ON K1A 0N4 Canada Your file Votre reference ISBN: 978-0-494-75409-2 Our file Notre reference ISBN: 978-0-494-75409-2 NOTICE: AVIS: The author has granted a nonexclusive license allowing Library and Archives Canada to reproduce, publish, archive, preserve, conserve, communicate to the public by telecommunication or on the Internet, loan, distribute and sell theses worldwide, for commercial or noncommercial purposes, in microform, paper...
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...NIKE CASE STUDY This post is a based on a case study of Nike. The article will be discussing legal and ethical analysis and how the impact the operational/ ethical issues of the organization, the paper shall also be discussing the contribution factors and how the company’s corporate culture may have helped to minimize the unethical behavior or actually contributed to/caused the unethical behavior. The paper is also going to provide ethical decision factors, which are going to address or going to be considered in resolving the legal/ethical issues identified within this case. And finally the paper is going to provide an action plan for each of the legal/ethical issues along with recommendations that company can take to help prevent these issues in the future. Nike is one of the famous franchises in the world that sells sportswear for all ages. But is mostly famous for their athlete shoes and apparel and Nike is also one of the major manufacturers of sport equipment as well. The slogan for Nike is “Just Do It”. Nike was founded in January 1962 in Oregon, United States by Philip Knight and Bill Bowerman. Nike has somewhere around 700 or more retail outlets spread all over the world, and has approximately 45 offices only outside the United States. And it employs 30,000 people all over the world. Nike had a revenue excess of $16 billion in 2007. Nike’s factories are mostly located in Asian countries like Pakistan, India, Malaysia, China, Indonesia, Philippines, Taiwan, Vietnam...
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...generates are at all-time highs. Revenues for college football and basketball have topped $6 billion annual revenue. But there is an ongoing debate in the world college athletics. Is it time to start paying the student-athletes? The answer has always been a resounding no. Some make the argument that the student-athletes get the best of both worlds of college. Free educations to play a game and special treatment on campus are some of the many reasons that experts are against paying student-athletes. I do not feel the same way. There is much more that goes in to practicing, playing and particapatating in sports at the collegiate level. Student-athletes should be compensated with some form of monetary payment for their efforts and all they sacfice on a day to day basis. In the United States today, most businesses and companies are try to run more efficiently as well as keeping up profitably. Companies have to produce a product that the consumer not only wants but needs. Keeping that particular product in demand, as well as increasing income, bottom line is the ultimate goal. As the company does well, the workers are compensated for all their effort and hard work. Companies over the years have devised many different options in rewarding employees: profit sharing, bonuses, and incentives based performance in addition to regular benefits. CEOs of companies are well taken care of because of the efficient job they are doing in running the company making money. Universities are no different...
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...IIBM Institute of Business Management Corporate Governance www.iibmindia.in Chapter 1 Corporate Governance Corporate governance refers to the system by which corporations are directed and controlled. The governance structure specifies the distribution of rights and responsibilities among different participants in the corporation (such as the board of directors, managers, shareholders, crors, auditors, regulators, and other stakeholders) and specifies the rules and procedures for making decisions in corporate affairs. Governance provides the structure through which corporations set and pursue their objectives, while reflecting the context of the social, regulatory and market environment. Governance is a mechanism for monitoring the actions, policies and decisions of corporations. Governance involves the alignment of interests among the stakeholders. There has been renewed interest in the corporate governance practices of modern corporations, particularly in relation to accountability, since the high-profile collapses of a number of large corporations during 2001–2002, most of which involved accounting fraud. Corporate scandals of various forms have maintained public and political interest in the regulation of corporate governance. In the U.S., these include Enron Corporation and MCI Inc. (formerly WorldCom). Their demise is associated with the U.S. federal government passing the Sarbanes-Oxley Act in 2002, intending to restore public confidence in corporate...
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