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Executive Compensation Dilemmas. Lecture 5. Shareholde

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Executive Compensation Dilemmas. Lecture 5. Shareholder dilemmas ... and easily understood method for computing executive compensation-49 ... – PowerPoint PPT presentation

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Title: Executive Compensation Dilemmas. Lecture 5. Shareholde


1
Executive Compensation Dilemmas
  • Lecture 5

2
Shareholder dilemmas
  • Do all shareholders want the same thing?
  • How much emphasis should be placed on short term
    results?
  • How much on long term results?
  • How should performance be judged in good vs. bad
    times and vs. peers?
  • What are the best metrics for the short-term?
    Best metrics for the long-term?

3
Shareholder dilemmas
  • What should the link be between long term value
    growth and long term incentive awards?
  • Pay systems that link the CEOs pay with that of
    other strategic officers?
  • Right targets at the right level?
  • Disclosures?

4
Executive Pay is Ok
  • The job of being a senior manager in a public
    company is a demanding one
  • It requires the ability to take risk while
    producing consistently higher returns
  • What is excessive pay?
  • Only limited amount talent is available to
    produce the market results required
  • Pay plans were shareholder approved

5
Executive Pay Is Not Ok
  • Pay is excessive and does not reflect the
    interests of shareholders
  • Executive pay is symptomatic of the ills
    affecting boards-lack of independence
  • Executive pay is not fully disclosed and is not
    tied to performance-President Bush
  • Why should fail executives have a soft landing?
  • Executive pay is creating a pay equity problem in
    the country

6
Dilemmas of Outside Consultants
  • Consultants were either used optionally and/or
    hired by management
  • Outside consultants were used to benchmark
    compensation at peer firms
  • Packages typically included four components
  • Analysis today is vigorously reviewed

7
Dilemmas
  • How do you compensate someone who is doing very,
    very well in a distressing situation?
  • What do we do when the vision and strategy
    doesnt produce the intended performance?
  • How do we deal with the interest of short-term
    vs. long-term shareholders?
  • What do you when todays compensation is dwarfed
    by the characteristic of the stock market?

8
What do directors think?Boardroom Briefing
Winter 2005
  • CEO compensation levels accurately reflect
    performance vs.. stated goals-56
  • My firm has a comprehensive and easily understood
    method for computing executive compensation-49
  • CEO and exec pay is tied directly to sustaining
    and increasing shareholder value-57
  • CEO and exec pay is line with the industry-69

9
What do directors think?Boardroom Briefing 2005
  • Re-scale to reduce the difference between the
    highest and lowest paid
  • More board involvement with the top 50 executives
  • Tie senior compensation packages to diluted per
    share income
  • Limit the CEOs ability to sell a significant
    percentage of their holdings over a period of
    years

10
What do directors think?Boardroom Briefing
Winter 2005
  • Look at pay packages as a whole and not just the
    pieces and the review the total that might occur
    under different outcomes.
  • Have a strict performance driven culture. Ensure
    that every package meet the smell test.
  • Dont pay rewards for meager results.

11
Where are we headed?
  • More focus on the internal scale
  • Tying pay to strategy and performance
  • Distinguishing between metrics for the short term
    vs. long term
  • Examining all aspects of pay and perks
  • More disclosures and scrutiny of soft landings
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