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Exec Comp

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Executive compensation is a topic that has been criticized and debated for many years. There are those who believe that CEO’s are paid too much and those who believe they are either underpaid or receiving what they deserve. There are several components that make up an executive compensation. A committee is created of three to five members of the board of directors who decide on the compensation. The NYSE requires that the members of the committee be independent directors; therefore the CEO of the company is not allowed to determine his own compensation. Also, the compensation should be based on the CEO’s individual performance as well as the company’s performance. In addition, the compensation must be competitive. The reason for this being that the company wants to attract the best and brightest to their executive board. The NYSE also requires that the compensation encourage the top executive to align his interests with those of the shareholders. Specifically, he should create long-term value for the shareholders. The committee that determines the compensation can combine several features to achieve their goals. First, they can offer a base salary. The base salary is usually below $1 million, because the IRS will allow it to be tax deductible. The committee can also offer annual cash incentives for meeting annual performance objectives. Executive compensation can also include long-term stock-based incentives. Long-term stock-based incentives include stock options, performance shares, and restricted stocks. In addition, the CEO’s compensation can include “generous” retirement plans and extra benefits such as financial planning, life insurance, security services, etc. Executive compensation receives a great day of criticism. First, many do not agree with the large payouts that the package allows CEO’s. Some argue that a CEO only looks at the short-term objectives

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