Chapter 11 Compensation: Methods and Policies
1.) Should the federal government place a ceiling on CEO compensation? Why or why not? CEO compensation is not a problem for the federal government to police, but due to the over compensation and stock options CEOs are receiving, they may need to step in. As of now, executive pay is “pay for performance”, which is covered by a base salary, bonus, and long-term incentives. Some companies have employment agreements that spell out everything that an executive will receive, regardless of performance. Some of these compensation packages that CEOs receive need to be revamped and be more based on the performance of them and the company. Also with some of the leadership and power some CEOs have, they are able to over-power the board of directors to obtain higher pay and bonuses. In situations like these, there needs to be someone, an organization or a company group that cannot be affected by the CEO’s power, that can police the CEO’s and company’s performance. The broad of directors are supposed to handle this, but there are some reasons that the board of directors fail in allowing excessive compensation to CEOS. As stated in the text, “many board of directors are passive and do not play an active or questioning role in setting executive compensation”, “executive pay is higer than would be obtained under thorough and intense arm’s length bargaining”, “the compensation portion is in many cases a less significant amount of the total payment”, and “salary and nonperformance compensation packages lack incentives that align managers and shareholder interests”. So yes the federal government could put a ceiling on CEO compensation, but for the CEOs that are truly working and producing a growing company, that ceiling could actually diminish their work ethic.
2.) Is pay compression a potential problem in terms of employee morale? Why? The definition the textbook gives for pay compression is...