CEO Compensation

Contents
Introduction
Topic

and Description
Goals and Objectives
Examples
Recommendations
Conclusions

Who is CEO?
Chief Executive Officer
The

highest ranking executive in a company whose

main responsibilities include developing and
implementing high-level strategies, managing the
overall operations and resources of a company,
making major corporate decisions, and acting as the
main point of communication between the board of
directors and the corporate operations (Investopedia,
2003).
The CEO is responsible for the success or failure of
the company.

What does CEO Do..

CEO

- most important spokesperson for the

organization
Setting Strategy And Vision.
Building Culture
Team Building
Capital Allocation

History of CEO
Compensation
From

1978 to 2013, CEO compensation,

inflation-adjusted, increased 937 percent, a rise
more than double stock market growth and
substantially greater than the painfully slow 10.2
percent growth in a typical workers
compensation over the same period
The CEO-to-worker compensation ratio was
20:1 in 1965 and 29.9:1 in 1978 which grew to
122.6:1 in 1995, peaked at 383.4:1 in 2000, and
was 295.9:1 in 2013

Define: Compensation
Compensation

in general terms means an amount paid

in cash to the employees for their work performed.
Forms of payment: sales commission, bonus, profit
sharing, overtime pay,
Or non-cash payments: company paid
accommodations, a company financed car and other
non cash taxable items.
https://youtu.be/zbH66lGRfiI

Define: CEO's
compensation
CEOs Compensation
Base

comprises of:

salary,
Bonuses,
Incentives such as Stock Options,
A guaranteed severance package in the instance of
employment termination for reasons other than cause,
A signing bonus for coming onboard,
Income protection guarantees in the event of a sale,
public stock offering, or other liquidity event,
- (Heathfield, 2015)

CEO's pay blow up in last two decades

- (Forbes- CEO Compensation, 2012)

How much CEOs earn an hour?

- (Krantz, 2015)

Ratio: CEO-to-Worker Compensation

- (Davis & Mishel, 2014)

Question to be answered..
Are The

United States CEOs paid more than

they deserve?
Or
Do CEOs really deserve higher compensation as
they have enormous talent?

Goals and objectives

Set

proper time horizons for executive

accomplishment: short term/mid term/ long-term.
Tilt compensation for level of responsibility:
a. High level 40% fixed salary/60% future
appreciation or 30% fixed salary/35% bonus/35%
future appreciation.
Performance measures includes:
a. financial measures
b. corporate citizenship/Corporate social
responsibility measures
c. consider company stock price against benchmarks
from peer companies,
d. industry or other relevant comparable, not just
increase in market price
e. consider if company is operating in a down

Importance

The

value to the organization depends on the CEO

performance; pay for performance is the important aspect of
many companies for their explanation of the compensation
plan.

CEO is the only position within the company, who has the
straight line of sight and more exposure.

People with great skills and responsibilities, who are not

afraid to take extreme decisions, and the people who can fillin this role (CEO) are very limited, which is why market
determined these people are worth a lot of money to their
companies.

Success of the company, and keeping the stockholders happy

is the most important part, which comes through
implementing organizations vision and leading the
development for the overall company.

Purpose
Presence

of CEO makes the company more like

a driving force to the success, which increases
the value of the company, based on his decisions
and commitment to the company growth market.

It

increases the companies stock value, making

positive and effective decisions, will have its
own reward by having a huge slice of the profit.

HR Department and
Management plan

The

compensation and benefits processes introduce the

transparency into Human Resources and CEOs for the
achieved performance.

It defines the compensation strategy, sets the transparent and

simple compensation policy.

The department monitors the external job market and optimizes

the personnel expenses budget of the organization.

It defines the general rules for the extraordinary payments,

bonus schemes applied in the organization and introduces
general other compensation policies like the Relocation Policy,
Short-Term Assignment Policies, Benefit Car Policies and other.

Finally approves the compensation adjustments for the CEO , as

recommended by the subcommittee assigned to review total
compensation, in consultation with Human Resources.

What difference does it

make ?
The

basic philosophical issues to consider in

forming the foundation of compensation strategies
include:

What

constitutes good performance ?

Does management make a difference in
performance ?
Does compensation make a difference in getting
good management ?
How much, if any, of management compensation
should be at risk ?

Pros & Cons

Pros :
Corporate compensation committees justify big
bonuses as a way to reward superior performance.
Other reasons for defending high levels of
compensation include the following:
Executives are responsible for large amounts of
capital.
Business competition is pressure-filled and
demanding.
Good executive talent is in great demand.
Effective executives create shareholder value.
Others justify high compensation as a fact of
business life reflecting market compensation trends

Cons : Big bucks come with big

Some

headaches

critics attack the size of incentive bonuses and the often vague
criteria on which bonuses are based.

Others point out that some executives receive record bonuses while their
organizations are in financial trouble and employees are asked to make
wage and benefits concessions. Large bonuses can also serve to raise
prices, ultimately leading to inflation and higher unemployment.

Another criticism of some executive incentive plans is that the time

period for which executive performance is measured is often too short
and the rewards are too large. This encourages executives to focus on
short-term items such as quarterly earnings growth and to neglect
longer-term items such as research and development and market share.

In the long run, therefore, stockholders may not receive a return equal
to what they might have earned from other investments, and they might
look for a better investment with a different organization.

Example: CEOs Compensation (2002

-2003 )
Below

gives the total compensation for the

investment bank CEOs in 2002 and 2003
Citigroup, Lehman Brothers and Bear Stearns
have CEOs who are among the top 10 highest paid

Example: CEOs Compensation (2011)

CEO

Compensation continued to rise in 2011

Overall, pay for the top 100 highest paid CEOs at
major companies rose 20 percent to more than $2
billion, from 2010 to 2011

Example: Top US Bank CEOs

(2013)
Below

chart shows the top ten highest paid CEOs

in the US banking industry in 2013

Example: Fast Food CEOs (2000 2013)

Over the period between 2000-2013 , he average fast
food CEO received annual compensation of $12.5
million
Starbucks, YUM!, Chipotle, McDonalds, and
Dominos have had the most persistently high levels
of CEO

Example: Non Profit Hospitals CEOs (2013)

Apart

from Profitable Organizations like Banks, Fast Food

industry etc., Certain Non Profit hospitals and their CEOs
receive high incomes, as noted below
There is no indication that this comes from being especially
efficient , but yet the CEOs are compensated well

RECOMMENDATIONS
Compensation

should encourage the company

and individual performance.
Organizations must reveal data concerning the
sum and kind of pay paid to the CEO.
Organizations must reveal the criteria utilized
for CEO compensation choices and the
relationship between the organization official
pay compensation and corporate execution.

RECOMMENDATIONS
Pay

bundles today must be sufficiently adaptable to address

the issues of an evolving working environment.

Benefits

should vary for international operations in order to

reflect local and regional cultures.

Compensation

should be in view of the Fair Labor

Standards Act, which incorporates procurements for the
lowest pay permitted by law, extra hours, and child labor.

Must

be aware of the state laws representing the lowest pay

permitted by law.

Should

know that employees have become more practical

regarding the compensation.

RECOMMENDATIONS
Appropriate

contractual terms and conditions of employment

should be discussed.
Appropriate compensation philosophy and policies to ensure
that the CEO is paid competitively and appropriately.
Ensuring awareness of the competitive marketplace and
recommended standard pay structures to ensure the CEO is
paid fairly for the complexity of the role and the performance
delivered.
Approving performance objectives and assessment criteria for
the CEO.
Establishing a performance review process and ensuring that,
on an annual basis, performance is assessed (including a 360
review) to be considered when determining pay.
Approving any base salary increases and pay-for-performance
pay tied to performance as outlined in performance
expectations.

RECOMMENDATIONS
CEO

compensation must be based on the

company's progress.
Objective measures must be in place to both access
the company's progress and provide relevant
feedback on compensation.
Most important thing to consider is its
compensation system aligns with its HR strategy
Companies should be aware of and should be
committed to implementing these
recommendations and specifically be aware of
discriminatory practices

Conclusion

Leader - Advises the Board, Advocates / promotes organization and

stakeholder change related to organization mission
Visionary / Information Bearer - Ensures staff and Board have sufficient
and up-to-date information, Looks to the future for change opportunities,
Interfaces between Board and employees, Interfaces between organization
and community
Decision Maker - Formulates policies and planning recommendations to
the Board, Decides or guides courses of action in operations by staff
Manager
Oversees operations of organization - Implements plans, Manages
human resources of organization, Manages financial and physical
resources, Board Developer
Assists in the selection and evaluation of board members - Makes
recommendations, supports Board during orientation and self-evaluation,
Supports Board's evaluation of Chief Executive
Human Resource Management Effectively manages the human
resources of the organization according to authorized personnel policies
and procedures that fully conform to current laws and regulations

References

Chief Executive Officer (CEO) Definition | Investopedia. (2003,

November 18). Retrieved April 14, 2015, from
http://www.investopedia.com/terms/c/ceo.asp

Rouse, M. (2008). What is CEO (Chief Executive Officer)? Definition from WhatIs.com. Retrieved April 14, 2015, from
http://searchcio.techtarget.com/definition/CEO

http://www.steverrobbins.com/articles/ceojob/

http://www.epi.org/publication/ceo-pay-continues-to-rise/

References

Kappel, M. (2012, July 8). What is Compensation? Retrieved April 14,

2015, from https://www.patriotsoftware.com/payroll/training/blog/whatis-compensation/

Davis, A., & Mishel, L. (2014, June 12). CEO Pay Continues to Rise as
Typical Workers Are Paid Less. Retrieved April 14, 2015, from
http://www.epi.org/publication/ceo-pay-continues-to-rise/

Krantz, M. (2015, April 6). Maximum Wage! How much CEOs earn an hour.
Retrieved April 14, 2015, from
http://www.usatoday.com/story/money/2015/04/06/how-much-ceos-earnhourly/25353423/

Forbes - CEO Compensation, 2012. Retrieved April 14, 2015, from

http://www.forbes.com/lists/2012/12/ceo-compensation-12-historical-paychart.html

Heathfield, S. (2015). Executive Compensation Definition. Retrieved

April 14, 2015, from
http://humanresources.about.com/od/glossarye/g/executivecomp.htm

References - Examples
http

://iveybusinessjournal.com/publication/thewall-street-example-bringing-excessive-exec
utive-compensation-into-line/
http://www.boston.com/business/articles/2
012/04/08/ceo_compensation_continued_to_r
ise_in_2011
/
http://
leasingnews.org/archives/Jun2014/6_11.htm
http://
www.demos.org/publication/fast-food-failu
re-how-ceo-worker-pay-disparity-undermine
s-industry-and-overall-economy
http://aneconomicsense.com/2013/12/26/vest
ed-interests-in-health-care-spectacular-pr