...THE MANAGEMENT OF EXECUTIVE COMPENSATION Posted on November 16, 2011 1 EXECUTIVE COMPENSATION Notes on THE MANAGEMENT OF EXECUTIVE COMPENSATION….. Executive compensation is the total remuneration or financial compensation a top executive receives within an organization. This includes a basic salary, any and all bonuses, shares options, and any other company benefit. Over the past three decades, executive compensation has risen dramatically beyond the rising levels of an average worker’s wage. Executive compensation is an important part of corporate governance, and is often determined by a company’s board of directors. Executive compensation is a very important thing to consider when evaluating an investment opportunity. Executives who are improperly compensated may not have the incentive to perform in the best interest of shareholders, which can be costly for those shareholders. While new laws and regulations have made executive compensation much clearer in company filings, many investors remain clueless as to how to find and read these critical reports. This article will take a look at the different types of executive compensation and how investors can find and evaluate compensation information. WHO IS AN EXECUTIVE? A person or group having administrative or managerial authority in an organisation. The chief officer of a government, state or political division. Chief executive officer (CEO), one of the highest-ranking corporate officers (executives) or administrators...
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...Emily Thornton (2005) criticized the top CEOs for taking advantage of Golden Parachutes agreement to seize huge profit from merger. The author quoted a string of the latest news to illustrate an increasing number of famous CEOs benefiting from merger-payout provisions. In addition, Thornton indicated that this trend has negatively influenced the whole financial market. This article was timely because golden parachutes became a hot issue among CEOs when it was published; and it alarmed CEOs and corporations to think twice before taking such actions. However, Thornton failed to thoroughly declare the positive effects caused by such agreements, or fairly compare the benefits those CEOs created for their companies against their compensation. This article was published after many famous executives gained a huge amount of compensation when their companies changed hands. The most representative example was James M. Kilts, Gillette’s CEO, who obtained about $188 million when Gillette was acquired by consumer-products giant Procter & Gamble Co. Compared with Kilts’ annual salary of $23million, this compensation went far beyond the norms. Similarly, Willian W. McGuire acquired $162 million by selling UnitedHealth, while Robert L. Nardelli was promised compensation valued at $114 million. According to a study conducted by Equilar Inc., approximately half of America’s 100 largest corporations had golden parachutes policies. Because of this popular trend, the author stated that many...
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...Concerns about economic equality have risen in recent years and have even erupted into protests such as the Occupy Wall Street movement in 2011. A significant portion of the outrage was centered on topics such as Executive Compensation and it’s disparity to the average workers wage. Critics of the executive compensation structure wonder how well the current system of paying executives is working and if it could be improved. Many questions are raised as to how much compensation was adequate and the corresponding effects on the organization. The Board of Directors of many organizations is under direct scrutiny for their role in determining executive compensation policies. In theory, through the electoral process of public companies, shareholder interests should perfectly align with management, although this is not always the case. Shareholders elect the Board of Directors, who in turn, acting as agents of the shareholders, elects the officers. A compensation committee is formed to develop compensation packages that encourage officers to reach the goals and expectations of the shareholders. However, executive compensation policies are often quite complex and this electoral process can fail to meet its objective. By the 1980’s, these packages were weighted heavily by incentives including company stock, stock options, and cash. Due to complexity and lack of experience, some compensation committees may have been unprepared to make informed decisions about executive pay...
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...A. The duties of managers are to lead the company in an ethical manner consistent with the corporate vision. B. The code of conduct for managers is different for each organization. C. The availability of “golden parachutes” allows managers to make decisions that are not in the best interest of their companies. 1. There is no need to be accountable to workers for poor decisions made by managers. 2. The responsibility to shareholders is less of a factor due to the separation packages given to managers when they are hired. II. The enforcement of company ethics is largely left to managers, who aren’t left accountable to answer for their actions. A. Ethics for managers is less important than making a profit for the company. B. There is virtually no accountability for ethics standards in most companies today. C. The violations of company ethics is not taken as seriously as it should be taken. D. The recourse for violation of ethics is for managers to take their “golden parachutes” and move to another job. III. The ethics training and monitoring is non-existent in today’s companies. A. The effectiveness of training is questioned because most is computer based to save money. B. The cost of constant monitoring of ethics by the company is costly. C. The reporting violations of company ethics leads to a better working environment...
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...being furnished to the Internal Revenue Service. If you are required to file a return, a negligence penalty or other sanction may be imposed on you if this income is taxable and the IRS determines that it has not been reported. PAYER’S federal identification number 086-98-8404 $ 7 Nonemployee compensation Payer made direct sales of $5,000 or more of consumer products to a buyer (recipient) for resale $ 8 10 NATIVIDAD VILLAMAR Street address (including apartment number) $ 9 15600.00 $ 317 E. 201ST APT 3 City State ZIP code G $ 12 14 17 Gross proceeds paid to an attorney State/Payer’s state no. 11 BRONX Account number (see instructions) NY 10458 15 b Section 409A income 13 Excess golden parachute payments State tax withheld $ 16 18 State income 15 a Section 409A deferrals $ BAA Form 1099-MISC $ $ $ $ $ Department of the Treasury ' Internal Revenue Service (Keep for your records.) Instructions for Recipient Recipient’s identification number. For your protection, this form may show only the last four digits of your social security number (SSN), individual taxpayer identification number (ITIN), or adoption taxpayer identification number (ATIN). However, the issuer has reported your complete identification number to the...
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...WEEK 7 SHAREHOLDER ACTIVISM 3. Whether management proposals at the target’s AGM are controversial. * Understanding a target company's defensive measures and a shareholder's procedural rights is key to any solicitation * to determine the existence of matters such as limitations or prohibitions on the ability to call meetings, restrictions on shareholder proposals, the existence of a staggered board, the adoption of a poison pill and other limitations that may significantly increase the expense, timing and ultimately determine the success of a proxy contest * provisions in a company's constituent documents, loan agreements, employment agreements and other material contracts should also be reviewed to determine whether there are change of control or similar provisions and the cost to the company in the event of success. 4. Whether to team up with other shareholders especially institution * Less effective since entity initiating a proxy contest usually does not have majority voting power by themselves and need the voting power of other shareholders. * To gain more power, proxies can also borrow votes by buying shares from other shareholders in return for options which entitle them to purchase the shares back at a lower price than the proxy bought. * In effect the loss the proxy makes is the cost of using their vote. Explain the free rider problem and discuss how this barrier could be overcome. * The proxy who is amassing all votes required to...
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...The purpose of this project is to provide the reader of this paper with a descriptive analysis of an episode of Crime Scene Investigations (C.S.I.). The intent is to show what is provided by the television series of what happens in a crime and what is supposed to happen during a crime scene investigation. The reader should be able to understand during this analysis to what in fact is non-realistic in this television episode and what is reality as determined by what has been researched. This will show what really happens in a crime scene investigations lab. The episode chosen for this review was CSI: Miami, The Golden Parachute. The episode begins with an aircraft taking important people to testify in front of the Security Exchange Commission. The aircraft began to have issues after takeoff and crash landed in the Florida Everglades. Fishermen were located in and around the everglades and witnessed the crash, they were consumed by what just happened and alerted 911. This prompted Horatio and his crime scene investigative team to begin work. There were eight total passengers on board including the pilots. They immediately identified bodies in the water and determined that this was a leve1 two biohazard. There were bodies thrown from the aircraft in the same area and they also found a body five miles down the everglades. The investigations continued throughout. There were things noticed that was clearly polished, questionable and what seemed to be real as part of an investigation...
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...Executive Pay Strategic Issues and Problems: As a result of the current economic crises, many companies are experiencing massive financial losses. These companies are reducing salaries and cutting peoples’ jobs while executives are maintaining high compensations. Using tax payer’s money, the US Government is assisting these financially struggling companies through the Troubled Asset Relief Program (TARP). TARP was created to assist these companies to ultimately allow them to survive and prevent massive job loss. Tax payers are concerned about executives receiving a high and unjust compensation in comparison to other non-executives whom are suffering from layoffs and compensation cuts. Executive compensation is controlled by the companies’ boards that in turn work under the Chief Executives. The US Government is intervening by proposing plans to regulate the compensation of executives in these financially stressed companies. Evaluation and Analysis: Compensation of executives is not regulated or monitored effectively. Executives have the ability to use deceptive and manipulative practices to achieve higher unjust compensations. Boards justify the high compensations as rewarding performance, which is contradicting considering the financial status of these companies. People are becoming outraged as many are losing their jobs and are receiving salary reductions while executives are still making millions. The US government is imposing executive compensation regulations to...
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...hypotheiss states that stockholders’ wealth rises when management prevent takeover. Companies today monitor it’s shareholders and the percentage that they own as a way to foresee a potential hostile takeover. Many companies even sell and provide their employees with shares because they are more likely to oppose a takeover, whereas an investor shareholder will more likely to favor a takeover. When an increase of trading occurs, the company gets a clue in that a bidder may be preparing to takeover the company. Once an acquirer has purchased a large amount of the company shares, it will announce it’s intentions and cause share prices to rise. Three types of preventative takeover methods are Poison pills, Corporate charter amendments, and Golden parachutes. Poison pills are securities issued by the companu to make the firm less valuable to...
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...Title | Description | Halloween | Scary, eerie, Spooky, horror, murder, death, tension. | Gary Barlow | Sadness, love, sorrow, heartbroken, lonely, regret, woeful | Rhianna – Monster | Insane, crazy, illness, eccentric, delusional | Monsters INC | Cheerful, lively, funny, merry, jolly, relaxed | Katy Perry - Fireworks | Depressing, useless, uplifting, idleness, encouragement, motivation, persuasive | Wand, question mark, scales, turtle, apple, eye, parachute, bulb and a lock. Harry was sitting in his house pondering on all the things he had done with his life, when he added up all his achievements he was quite depressed. There was nothing interesting about Harry. So he decided he would like to parachute out of a plane. The next day Harry went to the nearest sky diving facility. Once he was 50,000 feet in the air he began to question what exactly he was doing and why he ever decided to do such a thing. Before he knew it the green light came on and he was pushed out of the plane and as he fell through the clouds he could see the ground below was covered with what appeared to be a huge rainforest. With nowhere to land Harry pulled the cord and got tangled in a tree. Turns out he actually landed in a forest that had unnaturally huge apple trees. One apple was roughly the size of a football and they looked quite juicy and tasty indeed. He went to take a bite but he fell from the tree. Harry forgot about his situation and the cords had snapped. He plummeted...
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...product – especially considering the importance of CDS’ to the top and bottom lines – without knowing what they are selling. If they did realize that these securities were not as secure as the agencies indicated and misrepresented them to customers, then AIG should shoulder most of the blame. The final component of blame should fall to the Federal Reserve. In this situation, the Fed (and White House) should have ensured that if they were going to bail out AIG and take over 80% of the company, controls should have been put into place to ensure that the taxpayers receive their money back. Profligate spending at AIG should not have been allowed and the people responsible for the company’s disaster should have been replaced without golden parachute. Ultimately, if the government is going to get the taxpayers involved in a market event, it needs to look after that taxpayers’ interests first and foremost, and that does not look like it was the case when the estimates for $12-20...
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...The Dodd-Frank Wall Street Reform and Consumer Protection Act The Dodd-Frank, signed in 2010, was passed as a response to the US Great Recession of 2007/2008. The primary purpose is the create a sound economic foundation to grow jobs, protect consumers, rein in Wall Street and big bonuses, end bailouts and too big to fail, prevent another financial crisis. Key Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act Consumer Protections with Authority and Independence: The Bureau of Consumer Financial Protection has been established to ensure full protection of US consumers with respect to clear and accurate information that they need for mortgages, credit cards and other financial products. This new independent body has...
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...In 1980s, the workforce in US was affected by twenty five percentages through mergers and acquisitions activity. If the Percentage of activity will continue in recent phase, then in the end of decade all public companies will listed under new management or ownership. As the actual share value is paid by bidders the financial cost of acquisition will be understate and they don’t take some expenses under consideration such as advertising cost, golden parachutes, expenses of unsuccessful bids and payment for senior management. (Fulmer, 1986, Mc Manus, 1988) Many Multinational Companies are spending huge expenses on advertising and in public campaigns to take over major deals. The major deals between Dixon and Woolworth takeover took place. The company spent huge expenses on advertising and for public campaign which affect the financial position of Dixon’s company. In 1987 the huge bid was place by BTR against Pilkingtons. After two month Pilkingtons made a good stand by setting up International news agency which works for twenty four hours. They spent huge expenses on advertisement and made some expensive public campaign. In 1988, the Philip Morris paid $ 12.9 billion for kraft food which recorded a largest acquisition in a year. In the same year Atlantic Nestle paid £ 1.8 billion for Rowntree – Mackintosh which recorded as huge earning. From 1991 to 1993 through joint venture KPMG International recorded good value in three years. Investment pattern is greatly affected in Europe...
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...reported had 19 billion in profits. This is just a typical example of the greed that takes place with CEO’s and other executives. These types of salaries are over the top and need to be brought down to a realistic salary. Alternatives: I believe one alternative would be to make sure that no CEO’s or executives receive any type of bonus if the company receives any type of bailout money. Also if there is a layoff of employees or closures due to lack of money. This would force them to look for ways to keep the business running without cutting the workforce and keeping money for themselves. Another alternative is to make sure that the stockholders have a say in the compensation package of the executives and they can help prevent the golden parachutes that many take before they leave a company. Thirdly, I think the overall financial state of the company should be evaluated by a third party before any additional compensation is granted. Based on seeing how the company is doing only then bonus or stock options should be granted and only what is able to be afforded by the company and it should be based on how well the employee is working....
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...1. Why is Auhll (CEO of Circon) resisting to the takeover? How do incentives of Auhll conflict with those of other (minority) shareholders? Auhll liked challenges, he had an innovative mind and he liked to do something new and different every time. .Auhll seems to have a soft corner for lost causes, Circon was a lost cause which he had picked up to turn its performance completely. ACMI as well as Cabot fall into the same category as that of Circon Inc. Having seen success with Circon and ACMI, he had an undoubting confidence that he would turn around the performance of Cabot as he did with Circon and ACMI. His approach and belief, that he cannot be wrong had led him on a different path as that of the shareholders. The takeover bid was within the interest of the shareholders for them to enjoy heavy rewards for their holdings in the short term (the $18/share bid was at 83% premium) but Auhll strongly believed that he could obtain long term sustainable competitive advantage which will result in higher returns for shareholders in the long run. He was more concerned about the long term which would have benefited him (since he owned 11.5% share of Circon) and the insiders. Of course here he was in conflict with the minority shareholders as the minority shareholders wanted to reap short term benefits. Also, as stated in the case, he was used to being the CEO of Circon and had emotional ties with the company. He had made enough money and had a prestigious status (both financial and...
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