CEO_Pay by liuqingyan


									                CEO Compensation

Learning Objectives:

To understand the trends in CEO compensation, proposed
remedies for those who believe pay levels far exceed
notions of fairness, and to establish your own informed
opinion regarding the issues that surround CEO
             Key Findings: Results from the
            “Executive Excess – 2005 Report”

Defining CEO compensation:
salary + bonus + other perks + stock grants + stock options

•   431 : 1 Ratio of CEO pay to average production worker pay

•   CEOs of largest defense contractors are profiting from the

•   CEO pay correlates with company bad behavior (under-
    funded pension liability, tax dodgers, book cookers)

•   No relationship between CEO pay and firm stock
     War Profiteers: CEOs of Defense Contractors
               Score Big Pay Increases

•   Defense CEO pay up 200% since 9/11, compared to 7% for
    other CEOs

•   Defense CEO mean pay of $11.6 m far exceeds $433k
    benchmark allowed under government contract

Have these large defense contractors done a good job in the
  war effort ?

Do they bear great responsibilities ?

Do they take great risks ?
            Some Examples of War Profiteers

•   DHB Industries – maker of faulty armored vests; CEO
    pockets $70m in pay + $186m stock sales

•   Halliburton - $1.4b in “questionable” or unsupported
    charges; CEO earned $11.4m in 2004, up from $4.2m in

•   United Technologies – Air Force cancels Comanche
    helicopter; CEO earns $88m

•   CACI – scandal over employees involved in Abu Ghraib;
    CEO pay jumps 170%
                CEO Pay Trends

          Ratio of CEO Pay to Average
            Production Worker Pay
       1990                     2000      2004

How does this compare to other economic indicators ?
S & P 500 ? Corporate profits ? Minimum wage ?
                 CEO Pay Trends – cont’d.

•   Firms with the largest under-funded pension plans pay their
    CEOs 70% more than other large firms

•   Large firms that avoided paying federal corporate taxes
    paid their CEOs 12% more than other large firms

•   Large firms forced to restate earnings or accused of
    “cooking the books” paid their CEOs 70% more than other
    large firms.

•   Stock portfolio based on highest paid CEOs would have
    lost money since 1990

Which of these seem most disturbing to you ?
              Reducing the CEO Pay Gap:
            Proposed Congressional Actions

•   Limit CEO pay for proposed $15m bailout of airline industry

•   Define “reasonable business expense” at less than 25
    times pay of lowest full-time employee

•   Limit deductibility of executive pay and perks if corporate
    pensions are under-funded

•   Limit deductibility of stock-based pay if overly concentrated
    in the hands of a few employees

Which, if any, seem appropriate to you ?
               Reducing the CEO Pay Gap:
                 Proposed SEC Actions

•   Foster competitive corporate board elections

•   Increase shareholder participation in governance of
    executive compensation

Why have these initiatives failed to gain ground ?

Are the examples of voluntary corporate actions compelling ?

•   “I didn’t do it alone award” (Best Buy CEO, Anderson)
•   “Horatio ratio award” (Whole Foods Markets)
•   “shared sacrifice award” (no winners)
      CEO Compensation: Some Final Thoughts

Do the trends in CEO compensation violate your sense of
  fairness ?

Can these trends be blamed on our capitalist economy /
  society ?

Which of the proposed remedies, if any, would you like to see
  advanced ?

Is this reading too “left-winged” to be credible ?

To top