Rikki George, Jian Huang, Andrew Shotz

CEO Compensation:Dispelling the Rumors

Is CEO compensation justified by performance?

The Issue

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Our Presentation

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

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

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

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

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

Job Performance Metrics

✤ Organizational Commitment!

✤ Retention!

✤ Task Performance!

✤ Revenue!

✤ Stock Price/Shareholder Wealth

Average CEO Compensation

✤ Base Salary: $738,533!

✤ Bonus: $409,891!

✤ Total Compensation: $1,355,148

2013 National Averages:

The Corporate Structure

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

Pay-for-Performance Model

General Electric CEO: Jeff Immelt

✤ Double majored at Dartmouth as an undergrad!

✤ Received his MBA from Harvard!

✤ Has been GEs CEO since 2000

examples - pay vs revenue graphs

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Chapter 5 : Motivation

✤ Instrumentality!

✤ Equity Distress

Instrumentality

Equity Distress

✤ The American Public

Debunking the Critics

✤ The American Public

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Edgar Woolard 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)

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Lucian Bebchuk

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

A Brief Simulation

Key Takeaways

✤ 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

Works Cited