Ceo Compensation Essay example

943 Words Jan 30th, 2011 4 Pages
The Debate over CEO Compensation

Analyzing Managerial Decisions: The Debate over CEO Compensation
1. Do you think the fact that most American CEOs are paid so much more than rank-and-file employees suggests CEOs are overpaid? Explain.

I do not believe that just because American CEOs are paid much more than rank-and-file employees suggest that they are overpaid. Many CEOs whose salaries and compensation packages are discussed in the news are the CEOs from the largest American corporations and likely do not represent the average American CEO. Also, many times when CEO payouts are discussed in the news it is not a one year payout but instead a multi-year payout. Plus, many companies need to pay high salaries and incentives
…show more content…
4. Does the observation of the stock price increases when firms increase incentive pay for CEOs suggest that most CEOs do not receive enough incentive compensation? Explain.
I do not necessarily believe that just because stock prices increase when CEOs incentive pay has increased suggests that they do not receive enough incentive compensation. There are many factors that could lead to the stock price increase. One such example is that since the CEO has been given more compensation this may show consumers that the company is recovering from a bad time. That alone could have also driven the stock increase.
5. Are there any reasons why overpaying the CEOs might be in the shareholders’ interest (i.e., maximize shareholder value)?

There are reasons that the overpayment of the CEO might be in the shareholders’ best interest. Since there is only one CEO position for each company many employees will fight to get the position. Therefore, the reward for getting to that position and becoming the final person standing must be extremely attractive. The larger the company the nicer the prize needs to be at the end of the fight. Therefore, it could be in the best interest of the shareholders’ interest to overpay the CEO as it will assist them in getting the best CEO.

Analyzing Managerial…

Related Documents