Is CEO Power Bad? E. Han Kim and Yao Lu1 Abstract Recent evidence suggests that CEO power reduces shareholder value and the efficacy of incentive pay systems. To better understand how the power affects firm governance and performance, we decompose CEO power into three dimensions--structural, ability based, and ownership related. While structural power is indeed harmful--it is associated with higher managerial entrenchment, lower pay for performance sensitivity (PPS), and weaker firm performance--its
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A great CEO leads his/her team by pointing the way, and creating a strong culture among the employees while motivating and challenging them to rise to the next level. They must also have a moral responsibility to the company and its employees as well the environment in which the company does business. It is said that the total compensation packages for chief executive officers in the United States are excessive, unreasonable, unfair, and a matter of public concern. CEOs in the U.S. earn more than
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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
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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
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compensation by presenting arguments for and against it. While there has been an undisputed escalation in Chief Executive Officers (CEOs) pay and in comparison to the earnings of “average” workers over recent decades, academic researchers have taken positions on both sides of the debate. This paper would, therefore, provide a brief review of the basic frameworks within which CEO pay is viewed, and presents the principal arguments characterizing this debate. My OPINION WOULD FOLLOW. BRIEF BACKGROUND As mentioned
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Question1: High CEO Effort; Expected shareholders’ value = $1,000,000,000(0.3) + $800,000,000(0.4) + $500,000,000(0.3) = $770,000,000 Low CEO Effort; Expected shareholders’ value = $800,000,000(0.3) + $500,000,000(0.4) + $300,000,000(0.3) = $530,000,000 Improved shareholders’ value due to high CEO effort; Amount worth to shareholder for high CEO = $770,000,000 - $530,000,000 = $240,000,000 Question 2: Payment of bonus should be based on 1% of the improvement
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(less than 1% in most cases). a) Assume that we have a CEO that does not have 100% ownership of the company but has an ownership stake of 33% with no other shareholders having a significant ownership stake in the corporation so that the CEO has effective control over decision making in the organization. What are some of the advantages of the CEO having such a large ownership stake in terms of controlling agency costs? (3 pts) As this particular CEO essentially wears two hats, manager and large shareholder
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compensation can have adverse effects where the executive does not have the organisations best interest in mind, but his own in an attempt in maximise his compensation. Executive compensation may consist of the following components, a base salary, incentive pay in the form of a bonus, stock awards, option awards. It may include a Supplemental Executive Retirement Plan (SERP) and extras such as cars and even club memberships. An executive could also qualify for deferred compensation earnings. Clearly the
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Case Study 2 – At Oakwood CEO Pay in News a recent campaign by organized labour unions brought the issue of executive compensation into the public eye. Media coverage of executive compensation concerns has been extensive over the last few weeks with articles in national publications and a featured story on a television special, in addition to stories on local news stations. This extensive coverage has highlighted public concerns of the high level of pay that top executive receive. The union promotes
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executives want to maximize their wealth. This paper explores the principle for compensation, makes an attempt to design a new compensation package to the chief executive officer of Nike, Inc., and finally compare the different between the existing pay package and the new one. I. Introduction Nike, which originally named as Blue Ribbon Sports, is the largest manufacturer of the athletic footwear and apparel in the world, and one of the Fortune 500 companies. Figure1 shows that Nike is the leader
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