This document discusses CEO compensation and whether it is justified by company performance. It begins with a poll asking if compensation is based on performance. It then addresses common misconceptions about CEOs and compensation. It defines what a CEO is and provides averages for CEO characteristics, compensation, and company size. It discusses the corporate structure and models like distributive justice and pay-for-performance that are used to determine compensation. Examples of CEO compensation relative to company performance are given. Criticisms of CEO pay are addressed by citing experts. Key takeaways are that CEO pay is less than assumed, tied to shareholder interests and company performance, and critics arguments are unreliable.

1. Rikki George, Jian Huang, Andrew Shotz
CEO Compensation:
Dispelling the Rumors

2. Is CEO compensation justified by
performance?
The Issue

3. 01
Our
Presentation
Take a Class Poll!
Describe the Average CEO!
Explain the Corporate Structure!
Discuss Pay-for-Performance!
Address the Critics!
Key Takeaways

4. 01
A Brief Poll
Place your penny into the cup
if you believe executive
compensation is based on the
performance(+ or -) of the
company (during that
executive’s tenor).

5. Common Misconceptions
✤ The Warren Buffet’s of the world are “average” CEOs!
✤ CEO compensation is currently unregulated!
✤ CEOs alone make compensation decisions!
✤ Money paid to CEOs takes money away from non-
executive employees

6. Who is a CEO?
✤ Direct company operations and the is highest ranking
employee within a company or organization!
✤ Can also be referred to as the President or Executive
Director!
✤ Takes full responsibility for the corporate strategy and
company profitability

7. The Average CEO…
✤ Holds a graduate degree(Master’s, Doctorate)!
✤ Has over 15 years of job experience in their field!
✤ Manages a company of less than 100 employees

8. Job Performance Metrics
✤ Organizational Commitment!
✤ Retention!
✤ Task Performance!
✤ Revenue!
✤ Stock Price/Shareholder Wealth

9. Average CEO Compensation
✤ Base Salary: $738,533!
✤ Bonus: $409,891!
✤ Total Compensation:
$1,355,148
2013 National Averages:

10. The Corporate Structure

11. Distributive Justice
✤ “The perceived fairness of decision-making outcomes”!
✤ Equity !
✤ Most fair method, justifies why CEO’s are paid big
dollars compared to other employees and
stakeholders

12. Pay-for-Performance Model

13. General Electric CEO: Jeff Immelt
✤ Double majored at Dartmouth as an undergrad!
✤ Received his MBA from Harvard!
✤ Has been GEs CEO since 2000

14. examples - pay vs revenue graphs

15. 01
Chapter 5 :
Motivation
✤ Instrumentality!
✤ Equity Distress

16. Instrumentality

17. Equity Distress
✤ The American Public

18. Debunking the Critics
✤ The American Public

19. 01
EdgarWoolard Jr.
“Well, I was on a board
fifteen years ago, and four
CEOs were on the
compensation committee,
and for two consecutive
years, we gave the CEO
and the executives there no
bonus, no salary increase,
and modest stock options,
because their performance
was lousy those
years.” (2006)

20. 01
Lucian Bebchuk
“American
companies have been
successful and
executives deserve a
great deal of credit.” -

21. A Brief Simulation

22. KeyTakeaways
✤ CEOs are not paid as much as you’d think!
✤ Shareholders dictate and justify CEO compensation!
✤ CEOs are subject to the Pay-for-Performance Model!
✤ Critics of executive compensation are unreliable

23. Works Cited