1) The document discusses management compensation, comparing managerial compensation to executive compensation. It provides examples of compensation components like base pay, bonuses, stock options, and benefits.
2) It also discusses how firms can mitigate principal-agent problems in compensation, such as tying pay to long-term performance, cutting cash pay for distressed firms, and replacing top managers.
3) The Chevron example shows how compensation committees establish executive pay, with goals of setting incentive plans and producing compensation reports.
This document discusses executive remuneration, which refers to the financial payments and benefits provided to high-level managers in exchange for their work. It notes that executive remuneration includes salary, bonuses, incentives, and perquisites. Some key components are discussed, including salary, profit-sharing bonuses, long-term stock incentives, and perks such as medical benefits and transportation. Examples are given of famous CEOs in India and their high annual salaries, such as the CEO of Tata Consultancy Services with a salary of Rs. 11.6 crore.
The document discusses trends in executive benefits, including trends in cash and incentive compensation, retirement plans, and equity programs. It provides examples of different types of non-qualified deferred compensation plans, cash bonus plans, long-term incentive plans, and retirement plans that employers can offer executives. The summaries highlight advantages and disadvantages for both employers and executives of these various executive benefit plan types.
Executive compensation consists of salary, bonuses, stock options, and other benefits provided to executives in exchange for their services to an organization. It aims to attract, retain, and motivate skilled executives through sufficient pay that takes into account performance, government regulations, and tax law. Compensation typically includes short-term pay like salary and bonuses as well as long-term pay like stock options and restricted stock to align executive interests with shareholders and company performance over time. Common forms of compensation include cash, deferred compensation, retirement packages, and perks.
Executive Compensation Checklist for New and Experienced Board Members (Credi...NAFCU Services Corporation
Looking for an Executive Compensation Checklist for your Credit Union? This presentation serves as a valuable tool for new and experienced board members in pinning down the latest information on new regulations and compensation philosophies associated with creating a successful executive compensation plan. For more info, visit: www.nafcu.org/bfb
Executive compensation consists of four main elements: salary, bonus, long-term incentives, and perquisites. Salary makes up 40-60% of compensation but is not very significant on its own. Bonuses are based on company or individual performance. Long-term incentives include stock options that increase in value as share prices rise. Perquisites provide benefits like cars, club memberships, and other special privileges. Companies design compensation packages to attract, retain, and motivate top executive talent through salaries and various performance-based incentives.
Discusses Major Compensation Issues regarding Executive Compensation. Provides Justification for Unreasonable Executive Compensation and Outlines measures for Executive Accountability
A company offer a competitive compensation arrangement in order to attract, retain, and motivate a qualified CEO to manage the organization.
This Quick Guide examines the elements of executive compensation and the process by which the compensation committee establishes pay packages.
It examines the questions:
• What is the purpose of a compensation program?
• How do boards structure pay?
• What is the difference between expected, earned, and realized pay?
• How much do CEOs make?
• Are CEOs paid the “right” amount?
For an expanded discussion, see Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (Second Edition) by David Larcker and Brian Tayan (2015): http://www.gsb.stanford.edu/faculty-research/books/corporate-governance-matters-closer-look-organizational-choices
Buy This Book: http://www.ftpress.com/store/corporate-governance-matters-a-closer-look-at-organizational-9780134031569
For permissions to use this material, please contact: E: corpgovernance@gsb.stanford.edu
Copyright 2015 by David F. Larcker and Brian Tayan. All rights reserved.
The document discusses executive compensation at Pharmaxis Ltd and Sigma Pharmaceuticals Ltd. It outlines the components of executive remuneration at Pharmaxis, including base salary, superannuation, variable cash incentives, and equity remuneration. It also analyzes the relationship between executive remuneration and company performance for both companies. Regulatory disclosure requirements for executive compensation are also reviewed.
This document discusses executive remuneration, which refers to the financial payments and benefits provided to high-level managers in exchange for their work. It notes that executive remuneration includes salary, bonuses, incentives, and perquisites. Some key components are discussed, including salary, profit-sharing bonuses, long-term stock incentives, and perks such as medical benefits and transportation. Examples are given of famous CEOs in India and their high annual salaries, such as the CEO of Tata Consultancy Services with a salary of Rs. 11.6 crore.
The document discusses trends in executive benefits, including trends in cash and incentive compensation, retirement plans, and equity programs. It provides examples of different types of non-qualified deferred compensation plans, cash bonus plans, long-term incentive plans, and retirement plans that employers can offer executives. The summaries highlight advantages and disadvantages for both employers and executives of these various executive benefit plan types.
Executive compensation consists of salary, bonuses, stock options, and other benefits provided to executives in exchange for their services to an organization. It aims to attract, retain, and motivate skilled executives through sufficient pay that takes into account performance, government regulations, and tax law. Compensation typically includes short-term pay like salary and bonuses as well as long-term pay like stock options and restricted stock to align executive interests with shareholders and company performance over time. Common forms of compensation include cash, deferred compensation, retirement packages, and perks.
Executive Compensation Checklist for New and Experienced Board Members (Credi...NAFCU Services Corporation
Looking for an Executive Compensation Checklist for your Credit Union? This presentation serves as a valuable tool for new and experienced board members in pinning down the latest information on new regulations and compensation philosophies associated with creating a successful executive compensation plan. For more info, visit: www.nafcu.org/bfb
Executive compensation consists of four main elements: salary, bonus, long-term incentives, and perquisites. Salary makes up 40-60% of compensation but is not very significant on its own. Bonuses are based on company or individual performance. Long-term incentives include stock options that increase in value as share prices rise. Perquisites provide benefits like cars, club memberships, and other special privileges. Companies design compensation packages to attract, retain, and motivate top executive talent through salaries and various performance-based incentives.
Discusses Major Compensation Issues regarding Executive Compensation. Provides Justification for Unreasonable Executive Compensation and Outlines measures for Executive Accountability
A company offer a competitive compensation arrangement in order to attract, retain, and motivate a qualified CEO to manage the organization.
This Quick Guide examines the elements of executive compensation and the process by which the compensation committee establishes pay packages.
It examines the questions:
• What is the purpose of a compensation program?
• How do boards structure pay?
• What is the difference between expected, earned, and realized pay?
• How much do CEOs make?
• Are CEOs paid the “right” amount?
For an expanded discussion, see Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (Second Edition) by David Larcker and Brian Tayan (2015): http://www.gsb.stanford.edu/faculty-research/books/corporate-governance-matters-closer-look-organizational-choices
Buy This Book: http://www.ftpress.com/store/corporate-governance-matters-a-closer-look-at-organizational-9780134031569
For permissions to use this material, please contact: E: corpgovernance@gsb.stanford.edu
Copyright 2015 by David F. Larcker and Brian Tayan. All rights reserved.
The document discusses executive compensation at Pharmaxis Ltd and Sigma Pharmaceuticals Ltd. It outlines the components of executive remuneration at Pharmaxis, including base salary, superannuation, variable cash incentives, and equity remuneration. It also analyzes the relationship between executive remuneration and company performance for both companies. Regulatory disclosure requirements for executive compensation are also reviewed.
This document summarizes an analysis of executive compensation through various ethical frameworks and a case study on AIG. It discusses how executive pay has increased over time compared to average workers. While compensation is meant to incentivize performance, studies show pay is often not linked to returns. The document analyzes stakeholder perspectives and applies utilitarianism, justice theories, and ethics of care. It examines the AIG bonus scandal where executives received large payouts despite losses, and the public outrage this caused. Recommendations include linking pay to long-term performance and increasing shareholder say on compensation.
The document discusses executive compensation at United Bank Limited (UBL) in Pakistan. It provides details on the compensation packages of UBL's highest paid executives. The President and CEO receives an annual remuneration of approximately Rs. 246.5 million, including a monthly salary of Rs. 20 million. The document also reviews UBL's SWOT analysis and concludes that executive compensation is an important tool for organizations to attract, retain, and motivate top managers.
Hrd 24-mathis-12e-ch13-sh-variable pay and executive compensationjamalikuka
This document discusses variable pay and executive compensation. It covers topics such as developing successful pay-for-performance plans, individual and group/team incentives, profit sharing plans, employee stock ownership plans, sales compensation plans, and executive compensation. Key factors in developing successful variable pay plans include ensuring the plan fits the organization, rewards the appropriate actions, and is administered properly.
Executive Compensation Strategies Bearing Capital Partnersjamielist
This document discusses executive compensation strategies for negotiating tax-efficient rewards. It provides an overview and assumptions, then covers topics like negotiated vs contingent compensation, quick planning solutions, entitlements, equity plans like stock options and SARs, US employment considerations, negotiating benefits, exit strategies, dealing with severance, and more. The overall message is that executives have opportunities to structure compensation to maximize wealth in a tax-efficient manner through various negotiated arrangements.
Executive compensation refers to remuneration packages for senior management and executives. It typically includes a base salary, annual performance bonus, long-term stock incentives, retirement benefits, and perks. Long-term incentives, like stock options and performance-vested stock, make up the largest part of compensation and are intended to reward executives for achieving strategic goals that maximize shareholder value over 3-5 years. Performance-based pay aims to tie compensation to company and stock performance.
This document discusses effective compensation management from GE's perspective. It outlines different types of compensation systems and notes strengths like flexibility but also weaknesses like inequities. It profiles former GE CEO Jack Welch and current CEO Jeffrey Immelt's compensation. It examines the board of director's role in aligning pay with performance and shareholder interests. It also profiles Whole Foods CEO John Mackey and his policy of limiting executive pay to 14 times the average employee. In conclusion, it questions whether CEOs deserve the high levels of pay they receive.
Take this opportunity to learn about identifying and comparing to your competitors, building commitment and employee engagement and developing a total strategy that supports your organization’s mission and strategic plan.
Our webinar is structured to provide not only education but also useful strategies for addressing the many pressures on executive compensation, wages and salaries. Nonprofits are being scrutinized by the IRS, and executive compensation is a staple of all audits. Nonprofit managers and trustees must prepare for public, media, Form 990, IRS and State scrutiny. Wage and salary programs face a difficult economy as they struggle to attract and retain the best talent with scarce dollars.
This document discusses employee benefits and their administration. It defines employee benefits as compensation paid by employers apart from salary, like healthcare or retirement plans. Benefits are essential for attracting and retaining talent. The document then lists examples of common benefits and discusses taxation issues. It outlines four major administration considerations: who is eligible, choice levels, financing options, and legal defensibility. Flexible "cafeteria plans" give employees choice but also risks like increased costs. Overall administration requires balancing adequacy, competition and expenses.
This document discusses trends in CEO compensation for nonprofit hospitals. It summarizes recent media reports that found CEO pay is linked more to factors like hospital size, technology use, and patient satisfaction rather than quality metrics. It then outlines a preliminary study that found a strong correlation between hospital and health system performance on balanced scorecards and CEO compensation. Higher performance was associated with an average 1.1-1.5% rise in direct pay. The document concludes that boards appropriately incentivized cost-cutting in 2012 and acted responsibly to ensure organizational survival during healthcare reform implementation. It provides best practices for compensation committees to establish a rebuttable presumption of reasonableness and protect against executive pay excess.
This document discusses different components of employee compensation. It defines compensation as all forms of financial return, tangible services, and benefits received by employees. It outlines direct compensation such as basic salary, bonuses, commissions, and mixed/variable pay plans. It also discusses indirect compensation or benefits including insurance, paid time off, retirement plans, and perks. The document explains how compensation systems are designed and compensation theories like expectancy theory and equity theory. It provides examples of different types of direct compensation including basic wages, dearness allowance, bonuses, commissions, piece rates, and profit sharing.
Executive compensation refers to remuneration packages for senior management and executives. It typically includes a base salary, annual performance bonus, long-term stock incentives, retirement benefits, and perks. Long-term stock incentives, like stock options and performance-vested stock, make up the largest part of compensation and aim to reward executives for achieving strategic goals that maximize shareholder value over 3-5 years. Performance-based pay seeks to tie compensation to company and stock performance.
The document discusses CEO remuneration in India and internationally. It notes that average CEO salary in India is Rs. 3.3 million per year, while in the US it is $748,805. The highest paid CEOs in India make over Rs. 50 crore annually. CEO pay includes salary, bonuses, stock options, and other compensation. Boards of directors are responsible for setting CEO pay but there are debates around whether CEOs are overpaid and if high pay is linked to company and stock performance. Transparent reporting of CEO compensation is important for good corporate governance.
This document discusses executive compensation, including its meaning, features, and common components. Executive compensation packages typically include a base salary, allowances, incentives, and perquisites. Companies determine compensation based on external competition, internal equity, and pay for performance. Packages may include salary, bonuses, equity compensation, and benefits like healthcare. Public sector executive pay is often lower than comparable private sector roles.
Executive compensation consists of salary, bonus, long-term incentives, and perquisites. Salary makes up 40-60% of compensation but is subject to taxes, while bonuses and stock options are incentives. Perquisites include benefits like cars, clubs, and first-class travel. Compensation also includes retirement benefits, health insurance, and vacations. Unique features of executive pay include secrecy, varying amounts between executives, and tying pay to organizational performance. Companies use various strategies like cost-to-company packages, performance-linked payments, and flexible benefits to motivate and retain executives.
The document discusses compensation and rewards in the workplace. It defines compensation as the total reward an employee receives in exchange for their services, including both direct pay and indirect benefits. Workers' compensation originated in Germany in the 1800s and spread to the US in the 1930s-1940s to financially protect injured workers. Compensation management aims to recruit and retain qualified employees through fair compensation according to the worth of their jobs. Compensation can include base pay, commissions, bonuses, and other financial and non-financial rewards. Companies establish compensation philosophies to determine fair pay, bonuses, and incentives over time to attract and keep good employees.
Compensation Management importance and factors influencing compensationalisdq550
Compensation is what employees receive in exchange for their work, including both monetary and non-monetary benefits. It is important for both motivating employees and reducing costs for organizations. Many factors influence compensation, including external factors like the labor market, cost of living, unions, and laws, as well as internal factors like the organization's compensation policies, ability to pay, job analyses, and individual employee performance. Effective compensation systems can help organizations attract, retain, and motivate talented staff.
This document discusses compensation in the context of human resource management. It defines compensation as financial and non-financial rewards provided to employees in exchange for their services. The objectives of compensation are to recruit and retain qualified employees, increase or maintain morale, determine basic wages and salaries, and reward job performance. Compensation includes wages and salaries, incentives, fringe benefits, and perquisites. It can be direct monetary compensation or indirect non-monetary compensation. Factors that affect compensation include external factors like supply and demand of labor, cost of living, unions, and government as well as internal factors like ability to pay, management philosophy, productivity, and job requirements.
This document discusses incentive pay and team-based pay. It defines incentive pay as rewarding employees for achieving defined goals, and notes that incentive pay plans can be based on individual, team, business unit, or company performance. Team-based pay encourages collaboration and cooperation among team members to achieve shared goals. The document outlines different types of team-based pay including gain-sharing, profit-sharing, and employee stock ownership plans, and discusses their advantages and disadvantages.
Benefits, nonfinancial rewards, and other compensationEmran Habeeb
This document discusses various types of benefits and non-financial compensation provided by employers. It begins by distinguishing between legally required benefits such as social security, unemployment compensation, workers' compensation, and family medical leave. It then covers voluntary benefits such as health care, retirement plans, disability protection and other perks. Finally, it discusses how employers are increasingly offering customized benefit plans that allow employees to choose the compensation that best fits their needs.
This document discusses compensation for special groups within organizations. It describes how supervisors, corporate directors, executives, scientists/engineers, sales personnel, and contingent workers often receive unique compensation packages due to their strategic importance and the complex demands placed on their roles. Executive pay packages in particular are examined, including how base salaries, bonuses, stock options, and other benefits are used alongside pay-for-performance metrics to incentivize and attract high-level talent. Concerns over rising income inequality and the growing gap between CEO and average worker pay are also addressed.
Executive compensation has received attention due to high visibility, perceived unfairness, and importance. A good corporate governance rating signals that the board prioritizes shareholders over the CEO. Executive pay packages can motivate strategic decisions that benefit shareholders or reinforce the wrong choices. Recent environmental changes like shareholder activism, Sarbanes-Oxley, and SEC disclosures are affecting CEO risk and compensation. Managing risk involves stock options, pay-for-performance, and golden parachute provisions. The risk environment should influence executive contract design.
This document summarizes an analysis of executive compensation through various ethical frameworks and a case study on AIG. It discusses how executive pay has increased over time compared to average workers. While compensation is meant to incentivize performance, studies show pay is often not linked to returns. The document analyzes stakeholder perspectives and applies utilitarianism, justice theories, and ethics of care. It examines the AIG bonus scandal where executives received large payouts despite losses, and the public outrage this caused. Recommendations include linking pay to long-term performance and increasing shareholder say on compensation.
The document discusses executive compensation at United Bank Limited (UBL) in Pakistan. It provides details on the compensation packages of UBL's highest paid executives. The President and CEO receives an annual remuneration of approximately Rs. 246.5 million, including a monthly salary of Rs. 20 million. The document also reviews UBL's SWOT analysis and concludes that executive compensation is an important tool for organizations to attract, retain, and motivate top managers.
Hrd 24-mathis-12e-ch13-sh-variable pay and executive compensationjamalikuka
This document discusses variable pay and executive compensation. It covers topics such as developing successful pay-for-performance plans, individual and group/team incentives, profit sharing plans, employee stock ownership plans, sales compensation plans, and executive compensation. Key factors in developing successful variable pay plans include ensuring the plan fits the organization, rewards the appropriate actions, and is administered properly.
Executive Compensation Strategies Bearing Capital Partnersjamielist
This document discusses executive compensation strategies for negotiating tax-efficient rewards. It provides an overview and assumptions, then covers topics like negotiated vs contingent compensation, quick planning solutions, entitlements, equity plans like stock options and SARs, US employment considerations, negotiating benefits, exit strategies, dealing with severance, and more. The overall message is that executives have opportunities to structure compensation to maximize wealth in a tax-efficient manner through various negotiated arrangements.
Executive compensation refers to remuneration packages for senior management and executives. It typically includes a base salary, annual performance bonus, long-term stock incentives, retirement benefits, and perks. Long-term incentives, like stock options and performance-vested stock, make up the largest part of compensation and are intended to reward executives for achieving strategic goals that maximize shareholder value over 3-5 years. Performance-based pay aims to tie compensation to company and stock performance.
This document discusses effective compensation management from GE's perspective. It outlines different types of compensation systems and notes strengths like flexibility but also weaknesses like inequities. It profiles former GE CEO Jack Welch and current CEO Jeffrey Immelt's compensation. It examines the board of director's role in aligning pay with performance and shareholder interests. It also profiles Whole Foods CEO John Mackey and his policy of limiting executive pay to 14 times the average employee. In conclusion, it questions whether CEOs deserve the high levels of pay they receive.
Take this opportunity to learn about identifying and comparing to your competitors, building commitment and employee engagement and developing a total strategy that supports your organization’s mission and strategic plan.
Our webinar is structured to provide not only education but also useful strategies for addressing the many pressures on executive compensation, wages and salaries. Nonprofits are being scrutinized by the IRS, and executive compensation is a staple of all audits. Nonprofit managers and trustees must prepare for public, media, Form 990, IRS and State scrutiny. Wage and salary programs face a difficult economy as they struggle to attract and retain the best talent with scarce dollars.
This document discusses employee benefits and their administration. It defines employee benefits as compensation paid by employers apart from salary, like healthcare or retirement plans. Benefits are essential for attracting and retaining talent. The document then lists examples of common benefits and discusses taxation issues. It outlines four major administration considerations: who is eligible, choice levels, financing options, and legal defensibility. Flexible "cafeteria plans" give employees choice but also risks like increased costs. Overall administration requires balancing adequacy, competition and expenses.
This document discusses trends in CEO compensation for nonprofit hospitals. It summarizes recent media reports that found CEO pay is linked more to factors like hospital size, technology use, and patient satisfaction rather than quality metrics. It then outlines a preliminary study that found a strong correlation between hospital and health system performance on balanced scorecards and CEO compensation. Higher performance was associated with an average 1.1-1.5% rise in direct pay. The document concludes that boards appropriately incentivized cost-cutting in 2012 and acted responsibly to ensure organizational survival during healthcare reform implementation. It provides best practices for compensation committees to establish a rebuttable presumption of reasonableness and protect against executive pay excess.
This document discusses different components of employee compensation. It defines compensation as all forms of financial return, tangible services, and benefits received by employees. It outlines direct compensation such as basic salary, bonuses, commissions, and mixed/variable pay plans. It also discusses indirect compensation or benefits including insurance, paid time off, retirement plans, and perks. The document explains how compensation systems are designed and compensation theories like expectancy theory and equity theory. It provides examples of different types of direct compensation including basic wages, dearness allowance, bonuses, commissions, piece rates, and profit sharing.
Executive compensation refers to remuneration packages for senior management and executives. It typically includes a base salary, annual performance bonus, long-term stock incentives, retirement benefits, and perks. Long-term stock incentives, like stock options and performance-vested stock, make up the largest part of compensation and aim to reward executives for achieving strategic goals that maximize shareholder value over 3-5 years. Performance-based pay seeks to tie compensation to company and stock performance.
The document discusses CEO remuneration in India and internationally. It notes that average CEO salary in India is Rs. 3.3 million per year, while in the US it is $748,805. The highest paid CEOs in India make over Rs. 50 crore annually. CEO pay includes salary, bonuses, stock options, and other compensation. Boards of directors are responsible for setting CEO pay but there are debates around whether CEOs are overpaid and if high pay is linked to company and stock performance. Transparent reporting of CEO compensation is important for good corporate governance.
This document discusses executive compensation, including its meaning, features, and common components. Executive compensation packages typically include a base salary, allowances, incentives, and perquisites. Companies determine compensation based on external competition, internal equity, and pay for performance. Packages may include salary, bonuses, equity compensation, and benefits like healthcare. Public sector executive pay is often lower than comparable private sector roles.
Executive compensation consists of salary, bonus, long-term incentives, and perquisites. Salary makes up 40-60% of compensation but is subject to taxes, while bonuses and stock options are incentives. Perquisites include benefits like cars, clubs, and first-class travel. Compensation also includes retirement benefits, health insurance, and vacations. Unique features of executive pay include secrecy, varying amounts between executives, and tying pay to organizational performance. Companies use various strategies like cost-to-company packages, performance-linked payments, and flexible benefits to motivate and retain executives.
The document discusses compensation and rewards in the workplace. It defines compensation as the total reward an employee receives in exchange for their services, including both direct pay and indirect benefits. Workers' compensation originated in Germany in the 1800s and spread to the US in the 1930s-1940s to financially protect injured workers. Compensation management aims to recruit and retain qualified employees through fair compensation according to the worth of their jobs. Compensation can include base pay, commissions, bonuses, and other financial and non-financial rewards. Companies establish compensation philosophies to determine fair pay, bonuses, and incentives over time to attract and keep good employees.
Compensation Management importance and factors influencing compensationalisdq550
Compensation is what employees receive in exchange for their work, including both monetary and non-monetary benefits. It is important for both motivating employees and reducing costs for organizations. Many factors influence compensation, including external factors like the labor market, cost of living, unions, and laws, as well as internal factors like the organization's compensation policies, ability to pay, job analyses, and individual employee performance. Effective compensation systems can help organizations attract, retain, and motivate talented staff.
This document discusses compensation in the context of human resource management. It defines compensation as financial and non-financial rewards provided to employees in exchange for their services. The objectives of compensation are to recruit and retain qualified employees, increase or maintain morale, determine basic wages and salaries, and reward job performance. Compensation includes wages and salaries, incentives, fringe benefits, and perquisites. It can be direct monetary compensation or indirect non-monetary compensation. Factors that affect compensation include external factors like supply and demand of labor, cost of living, unions, and government as well as internal factors like ability to pay, management philosophy, productivity, and job requirements.
This document discusses incentive pay and team-based pay. It defines incentive pay as rewarding employees for achieving defined goals, and notes that incentive pay plans can be based on individual, team, business unit, or company performance. Team-based pay encourages collaboration and cooperation among team members to achieve shared goals. The document outlines different types of team-based pay including gain-sharing, profit-sharing, and employee stock ownership plans, and discusses their advantages and disadvantages.
Benefits, nonfinancial rewards, and other compensationEmran Habeeb
This document discusses various types of benefits and non-financial compensation provided by employers. It begins by distinguishing between legally required benefits such as social security, unemployment compensation, workers' compensation, and family medical leave. It then covers voluntary benefits such as health care, retirement plans, disability protection and other perks. Finally, it discusses how employers are increasingly offering customized benefit plans that allow employees to choose the compensation that best fits their needs.
This document discusses compensation for special groups within organizations. It describes how supervisors, corporate directors, executives, scientists/engineers, sales personnel, and contingent workers often receive unique compensation packages due to their strategic importance and the complex demands placed on their roles. Executive pay packages in particular are examined, including how base salaries, bonuses, stock options, and other benefits are used alongside pay-for-performance metrics to incentivize and attract high-level talent. Concerns over rising income inequality and the growing gap between CEO and average worker pay are also addressed.
Executive compensation has received attention due to high visibility, perceived unfairness, and importance. A good corporate governance rating signals that the board prioritizes shareholders over the CEO. Executive pay packages can motivate strategic decisions that benefit shareholders or reinforce the wrong choices. Recent environmental changes like shareholder activism, Sarbanes-Oxley, and SEC disclosures are affecting CEO risk and compensation. Managing risk involves stock options, pay-for-performance, and golden parachute provisions. The risk environment should influence executive contract design.
Executive Compensation at Financial InstitutionsDavid Stone
This document discusses executive compensation at financial institutions. It provides context on the structure of executive compensation packages generally and how they have changed over time. While compensation structures are similar across industries, the document argues executive compensation at financial institutions should better account for risks to stakeholders beyond shareholders, as excessive risk-taking contributed to the global financial crisis. The crisis has spotlighted compensation at financial firms and led to reductions, especially for CEOs, though broader reform is still needed.
This document discusses executive compensation, including bonuses, stock options, and stock grants. It outlines how these compensation methods are intended to align manager and shareholder goals by tying executive wealth to shareholder wealth. However, the evidence is mixed on whether incentive-based compensation actually achieves this goal, as firm performance does not seem strongly correlated with executive pay. The document also provides examples of potential managerial conflicts of interest and self-serving behaviors that compensation aims to address.
Corporate governance involves establishing relationships between a firm's owners and managers to effectively direct strategic decisions. It addresses the separation of ownership and control in modern corporations through mechanisms like boards of directors and executive compensation. These governance mechanisms aim to align manager and shareholder interests and monitor managers to mitigate opportunistic behavior that could harm shareholders.
Executive Compensation: Exploring Models and Considerations in Corporate Remu...assignmentcafe1
Welcome to our comprehensive SlideShare presentation on executive compensation, where we delve into the intricate world of corporate remuneration models and considerations. Join us as we explore the various approaches, challenges, and ethical considerations surrounding executive compensation in today's corporate landscape.
In this enlightening presentation, we aim to provide a nuanced understanding of the complexities involved in determining executive compensation packages. We examine different models and frameworks, including performance-based pay, equity-based incentives, and bonus structures, and assess their effectiveness in aligning executive incentives with organizational goals.
Through a careful analysis of industry practices, regulatory frameworks, and shareholder perspectives, we explore the considerations that shape executive compensation decisions. We delve into the challenges of balancing competitive market forces, ensuring fairness and transparency, and addressing concerns related to income inequality and excessive executive pay.
Furthermore, we examine the impact of executive compensation on corporate governance, organizational culture, and long-term value creation. We discuss the influence of compensation structures on risk-taking behavior, strategic decision-making, and the attraction and retention of top talent within the company.
Our presentation goes beyond theoretical discussions by incorporating real-world examples and case studies. By exploring notable instances of successful and controversial executive compensation practices, we aim to provide practical insights and lessons for organizations navigating this complex landscape.
Through this exploration, we encourage reflection and dialogue on the ethical dimensions of executive compensation. We consider the perspectives of various stakeholders, including shareholders, employees, and society at large, and discuss the importance of designing compensation packages that align with broader social and organizational values.
Join us as we delve into the multifaceted world of executive compensation, analyzing different models, considerations, and ethical implications. Together, let us gain a deeper understanding of the intricacies surrounding corporate remuneration and explore ways to promote fairness, accountability, and long-term sustainable growth.
The document discusses the current and proposed bonus systems for managers at Industrial Electronics, Inc. (IE). The current system bases bonuses on company profits above 12% of net worth, but provided no bonuses in 2000-2001 due to recession. The proposed system bases bonuses on division/group/corporate economic profits compared to targets. It charges managers for tied-up assets and does not consider financing. While more controllable and using residual income, the proposed system also has shortcomings like not linking bonuses to strategy and providing room for gamesmanship.
The document discusses executive compensation practices at banks and financial institutions. It covers issues like pay freezes, incentive pay, performance metrics, restrictions on TARP recipients, calls for increased transparency and shareholder votes on compensation. It provides advice on selecting appropriate performance measures and ensuring compensation is tied to achieving goals.
The document discusses executive performance measures and compensation. It outlines the objectives of management compensation as motivating managers, incentivizing decisions aligned with company goals, and fairly rewarding performance. Compensation typically includes a mix of salary, bonuses, and long-term incentives like stock options. Bonus plans are based on performance measures, compensation pools, and payment options like cash, stock, or deferred compensation. Effective plans balance short and long-term incentives and individual vs company-wide goals.
This document discusses various methods organizations use to recognize employee contributions through pay, including merit pay, individual incentives, profit sharing, ownership, gainsharing, group incentives, and balanced scorecards. It describes theories around how compensation influences individual performance and issues around executive pay. Effective pay strategies consider factors like the organization's goals, risk tolerance, and whether work is individual or team-based. Both financial rewards and communication are important for motivating employees.
Executive compensation consists of salary, bonus, long-term incentives, and perquisites. Salary makes up 40-60% of compensation but is subject to taxes, while bonuses and stock options are incentives. Perquisites include benefits like cars, clubs, and first-class travel. Compensation also includes retirement benefits, health insurance, and vacations. Unique features of executive pay include secrecy, varying amounts between executives, and tying pay to organizational performance. Companies use various strategies like cost-to-company packages, performance-linked payments, and flexible benefits to motivate and retain executives.
Executive compensation consists of salary, bonus, long-term incentives, and perquisites. Salary makes up 40-60% of compensation but is subject to taxes, while bonuses and stock options are meant to motivate and incentivize. Perquisites include benefits like cars, club memberships, and first-class travel. Compensation packages also include retirement benefits, health insurance, and vacations. Public sector executive pay is much lower than private sector. Companies determine pay based on job complexity, their ability to pay, and the executive's human capital.
This document provides an introduction to corporate finance. It discusses that corporate finance involves managing a company's assets and financing decisions. This includes capital budgeting, credit policy, cash management, and decisions around capital structure, equity financing, dividends, and borrowing. The goals of corporate finance are to determine what long-term investments a firm should make, how to raise money for investments, and how much cash is needed for short-term obligations.
Many people consider executive compensation to be excessive, but is it really? The answer may lay in the eye of the beholder. A thought provoking discussion on the topic.
This document discusses key concepts in financial management including the role of finance managers, financial goals of organizations, and financial decision making. It covers topics such as the functions of finance including investment, financing, and dividend decisions. The primary financial goals discussed are profit maximization, maximizing earnings per share, and shareholder wealth maximization, along with their limitations. Risk-return tradeoffs and how financial managers may have different goals than shareholders are also summarized. The organization of finance functions and roles of the treasurer and controller in financial management are outlined as well.
This document discusses key concepts in financial management including the role of finance managers, financial goals of organizations, and financial decision making. It covers topics such as the functions of finance including investment, financing, and dividend decisions. The primary financial goals discussed are profit maximization, maximizing earnings per share, and shareholder wealth maximization, along with their limitations. Risk-return tradeoffs and how financial managers may have different goals than shareholders are also summarized. The organization of finance functions and roles of the treasurer and controller in financial management are outlined as well.
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The document provides an overview of financial management. It discusses the three main decision areas that financial managers deal with: investment decisions, financing decisions, and asset management decisions. It also explains that the goal of financial management is to maximize shareholder wealth by increasing share price. Additionally, it covers topics such as agency theory, corporate governance, and the roles and responsibilities of key financial positions within an organization.
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Management compensation 2007
1. 1
Management Compensation
JEM100 - Corporate Governance
Doc. MPhil. Ondřej Schneider, Ph.D., McKinsey Chair
Prof. Ing. Michal Mejstřík, CSc
12/11/2007
Jana Procházková
Julia Neue
Robert Warren
Tony Mikes
2. 2
Outline
− Introduction to Management Compensation
− Comparison between Managerial and
Executive Compensation
Chevron case example
− Principal Agent Problem
− Mitigating Principal Agent problems
− Concluding remarks
3. 3
Introduction to Management
Compensation
Specifications of managerial work
very difficult to describe – various types of task on day to
day bases
− internal role
directing an organizational unit
(leadership)
− external role
developing relationships outside the
organization
4. 4
Levels of management
Managerial compensation follows the
hierarchical structure of an organization
− Top management
− 1-5 % of the organization’s workforce
− Developing goals and strategies to keep the organization effective
− Concerned with the problems extending years in the future
− Responsible for the total operation (CEO and executive VPs)
− the owners through the board of directors see them as the trustees of
their sources
− their compensation is connected with the success of the organization
as a whole as well as their own
− indeed, it has been found that managerial system which did not focus
on critical organization outcomes were ineffective (Schuster,
Management Compensation)
5. 5
Levels of management
− Lower management
− first – line mangers = supervise the work of non-managerial
employees
− compensated as a percentage of wage of the people they supervise
− Middle management
− a larger number of managers
− information channel between top managers and supervisors
− specific function in the organization and coordinate other functions in
the organization
− compensation related to the function being managed, managerial
surveys
− decrease over the past years in order to reduce bureaucracy
6. 6
Difference between 'Management'
and 'Executive'
Management group
Executive group
exists within the management group
“top”, “president”, “vise-president”, “chief”
differentiated position within the organization
In many international locations and within small to medium-sized
North American firms, the terms „managers“ and „executives“
are used interchangeably
However
8. 8
Components of managerial
compensation
− base pay,
− bonuses (short term incentives),
− capital appreciation plans (long term
incentives),
− deferred compensation and benefits
(including perquisites/perks).
9. 9
Aspects of compensation plans
− commitment
− managers associate themselves with the organization
− difficult to turn off the job even in their leisure time
− decision making
− core of managerial work
− particularly broad framework of decision-making under uncertainty
− primarily conceptual decision-making
− orientation
− focus on getting the job done in the organization
− power needs
− enjoy controlling a situation and having a strong influence on the
outcome of events
− the idea of status
− managers spend an enormous amount of time at work
− have heavy responsibility
10. 10
Other ways to determine the level of
pay
− Management by objective
based on individual definition of performance
measurable standards are developed by the
manager himself and his supervisor
performance is evaluated towards the objectives at
the end of a period by both parties jointly
drawbacks
hold managers to the objective that are out of date
in case the world is too dynamic
11. 11
Other ways to determine the level of
pay
− Pay for performance
It has been found that the perception would lead to
higher pay is more important than the fact
− Generally, there is nearly no relation between pay and performance
with managers measured from a sample of 600 middle- and lower-
level managers.
− However, those who were the most highly motivated felt that pay was
important to them and that good performance would lead to higher
wage
In many cases it is hard for the managers to see
the connection between performance and pay
− rewards are deferred
− the goals are not clearly expressed
It cannot be taken for granted that paying for
performance is worth doing
12. 12
Bonus standards – short term
incentives
− a manager receives a bonus because some
standard was met in the past period
organizational (productivity, cost saving)
job related (job outcomes, performance of
particular activities)
usually paid in cash
based upon the base pay of the managers
− e.g. assume that the organization wished to maintain a minimum
return on assets of 10 percent. The managers may receive 20 percent
of base pay if the organization achieves a 10 percent return on assets
and an additional 5 percent of base pay for each 5 percent increase in
return on assets over 10 percent.
13. 13
Long term incentives – stock options
Is used to tie the managers to the long term
success of the organization
primarily motivates top management
granting managers the right to become a part
of shareholders
ownership and control come closer together
14. 14
Stock Option Possibilities
Stock Option Plan
managers are offered stock at a set price
Stock Appreciation Rights (SAR)
work like stock options but the managers do not
have to buy the stock
the manager receives from the organization the
difference between the current market value of the
stock and the stated option value of the stock
however, the amount of possible gain is limited
15. 15
Stock Option Possibilities
Restricted stock plans
the manager is granted a certain number of shares
of stock as a bonus but may not sell those shares
until certain conditions have been met (such as
certain performance, employment for certain
years)
Phantom Stock plans
In these plans the manager is awarded units that
represent shares of stock. These units typically
mature at some time, ordinarily four to six years.
At maturity the manager is paid the then-current
value of the stock or the difference between the
original value and current value.
16. 16
Stock Option Possibilities
Performance share plans
the manager is granted performance units that
represent shares of common stock. He or she
earns these shares through the performance of the
organization.
17. 17
Issues with stock options
Managers may be inclined to inflate the
value of the company so as to inflate the
value of their stocks options.
− Enron
− Apple Computer
− WorldCom
− Global Crossing
18. 18
Deferred compensation
Retirement benefits
Golden parachutes
provides pay and benefits to an executive after
being terminated due to a merger or acquisition
− reasons for doing so
limit the risk of unforeseen events
business expenses
Perks
designed to satisfy special needs of the managers,
especially top managers
may include a car, entertainment expenses, and
club memberships.
services such as free medical examinations, low-
cost loans, and financial or legal counseling
19. 19
Comparison between management
and Executive Compensation
Annual salary comparison table
Data in national currencies:
County Position Low Average High Bonus %
CEO 187 603 239 778 479 557 37,3
CFO 93 359 133 848 440 238 22,4
CEO 367 466 469 665 939 331 37,7
CFO 182 874 262 185 862 351 22,4
CEO 3 925 703 5 017 514 10 035 028 37,3
CFO 1 953 747 2 801 071 9 213 003 22,4
GreatBritain
Germany
CzechRepublic
Source of data: www.salaryexpert.com - salary calculator
20. 20
Comparison between management
and Executive Compensation
Annual salary comparison table
Data in EURO:
County Position Low Average High Bonus %
CEO 265 083 338 806 677 614 37,3
CFO 131 916 189 127 622 056 22,4
CEO 367 466 469 665 939 331 37,7
CFO 182 874 262 185 862 351 22,4
CEO 144 375 184 528 369 057 37,3
CFO 71 853 103 015 338 825 22,4
GreatBritain
Germany
CzechRepublic
Source of data: www.salaryexpert.com - salary calculator
21. 21
Interesting note:
Pay rises in all circumstances
The CEO is truly underpaid. The consultant reports this
to the Compensation Committee, and the executive's
salary is increased.
The CEO is not underpaid and the company is doing
well. The consultant is asked to compare the
executive's salary to a set of companies who are known
to pay highly. The result is a recommendation to raise
the executive's pay.
The CEO is not underpaid and the company is not doing
well. The consultant finds management lamenting that
with these low wages, turnover is inevitable. The
consultant then suggests a raise to prevent turnover.
22. 22
Examples
Kmart
Webvan
Mattel Inc.
Former CEO Chuck Conaway filed the country's
largest retail bankruptcy, after which he (and
other Kmart executives) still received bonuses.
While Kmart laid off 22,000 workers without
severance pay, Conaway walked away with $9
million.
George Shaheen left the online grocery company
a few months before it closed its doors, taking a
severance package of $375,000 per year for life. (If
he dies, his wife still receives the compensation.)
While Jill Barad was at the reigns of Matel, the
stock price dropped 70%, but she still walked
away with over $10 million.
Source: Jennifer Dixon, "Departure of Kmart Chief Raises Questions about Severance Package," Detroit Free Press,
March 12, 2002.
23. 23
Executive pay compared to blue-
collar workers in the U.S.A.
Source: Business Week
Year CEO salarycompared to blue-collar worker
1980 42 times
1990 85 times
2000 531 times
24. 24
Differences in the pay of managers
and blue collar workers explained
5 Motivational models:
1. The equity model
if the manager is earning such high salary, his
contribution should be equally great
contradictions
2. The performance-motivation model
questions whether it is the manager or other
environmental factors that lead to results of the
company
25. 25
Differences in the pay of managers
and blue collar workers explained
3. Agency theory
managers – agents of the stockholders
in the general assumption, interest of the
shareholders and managers are the same, but in
practice not. Shareholders thus attempt to align
the interest of top management with their own by
designing attractive compensation packages
4. Tournament theory
promotion is viewed as tournament and the high
pay is the price of winning
26. 26
Differences in the pay of managers
and blue collar workers explained
5. Social comparison theory
people need to evaluate themselves in comparison
to others
thus managers of one company must be paid
similarly to managers of another
27. 27
How is pay established?
Board of Directors = Compensation
Committee
28. 28
Executive compensation
− The compensation of every employee is
decided by the company owners through the
board of directors and the management team
(or "management committee").
− There may be a 'personnel and compensation
committee' that deals specifically with labour
compensation.
− Employee compensation may be negotiated
with a workers union.
− Management team compensation is often left
to the company.
29. 29
Executive compensation
Five tools of compensation:
base salary
short-term incentives
long-term incentives (LTIP)
employee benefits
Perquisites
In a typical modern US corporation, the CEO
and other top executives are paid salary plus
short-term incentives or bonuses.
30. 30
Management compensation
Chevron management committee example:
The purpose of the Management Compensation Committee of
the Board of Directors of Chevron Corporation is:
1. To discharge the responsibilities of the Board of
Directors of the Corporation relating to
compensation of the Corporation’s executives;
2. To assist the Board of Directors in establishing
the appropriate incentive compensation and
equity-based plans and to administer such plans;
3. To produce an annual report on executive
compensation for inclusion in the Corporation’s
annual proxy statement; and
4. To perform such other duties and responsibilities
enumerated in and consistent with this Charter.
31. 38
Mitigating the Principal-Agent
problem
Managers have strong incentives to gamble
on risky projects that impose potentially
large losses on the firm's fixed claim holders.
Moral hazard :
− investment-risk choices made by
management are not readily observable by
depositors and regulators
32. 39
Firms response to threat by:
Altering top-management compensation as a
way of influencing managerial return and
risk-taking incentive
Bank lenders may impose measures (such as
imposing more restrictive loan covenants) to
protect their investments in troubled firms.
Senior managers' compensation may be tied
to the successful resolution of the firm's
bankruptcy or debt restructuring, or is based
on the value of payoffs to creditors.
From “CEO Compensation in Financially Distressed Firms: An Empirical Analysis” pg 456
33. 40
Firms response to threat by:
Replacing top managers:
− One-third of top management may be
replaced in a given year around default, and
those who remain often take substantial cuts
in their salary and bonus.
Average inside replacement CEO earned 35% less
than his or her predecessor.
Average outside replacement CEO earned 36%
more than the CEO he or she replaced.
− Outside replacement CEOs, who represent almost 60% of new CEO
hires, also typically receive large grants of stock options as part of
their compensation (to turn the company around).
34. 41
Firms response to threat by:
Deferred compensation:
Deferring part of the managements compensation
until the firm's financial restructuring was
completed.
− reduces legal fees and other costs that increase directly with the
amount of time that firms spend renegotiating their debt contracts.
firms respond to financial distress by
basing more of senior managers' compensation on
long-term stock-based performance measures,
cuts in their cash compensation (including
bonuses).
35. 42
Concluding remarks
The components of managerial
compensation are:
− base pay,
− bonuses (short term incentives),
− capital appreciation plans (long term
incentives),
− deferred compensation and benefits
(including perquisites/perks).
Principal – Agent Problems can be mitigated
through a variety of methods
37. 44
Hall, Brian J., Murphy,Kevin J. “The Trouble with Stock Options” Journal of Economic Perspectives. Vol.
17(3), Summer 2003
"A Theory of Bank Regulation and Management Compensation." The Review of financial
studies Spring 2000 Vol. 13, No. 1,
Chang, Chun. "Payout Policy, Capital Structure, and Compensation Contracts when
Managers Value Control" The Review of Financial Studies, Vol. 6, No. 4. (Winter, 1993)
Gilson, Stuart C., Vetsuypens, Michael R. "CEO Compensation in Financially Distressed
Firms: An Empirical Analysis." The Journal of Finance, Vol. 48, No. 2. (Jun., 1993)
Hadlock, Charles J., Lumer, Gerald B. "Compensation, Turnover, and Top Management
Incentives: Historical Evidence" The Journal of Business, Vol. 70, No. 2. (Apr., 1997)
http://news.bbc.co.uk/1/hi/business/5131990.stm