Saturday, September 28, 2019

Executive Compensation Schemes Essay Example | Topics and Well Written Essays - 3000 words

Executive Compensation Schemes - Essay Example A promising action to address this problem is to develop frameworks for employee stock options valuation that will enhance the quality of compensation disclosure. This lack of information also does not help shareholders determine the company's long term prospects. The debate on executive compensation continues to acquire a national scope with the string of investment bank failures. Many business analysts put forward corporate reforms that try to construct payment schemes that will really induce CEOs to pursue the shareholder interest. When Nike paid William Perez US $18.2 million dollars in 2006, it made him the highest-paid chief executive. However, it was during Perez' one-year tenure that Nike's stock price dropped by more than $7 per share and the Swoosh lost US $2 billion dollars in market value. Nike's board asked the underperforming Perez to leave the following year. A US government official acknowledged the exorbitant executive pay in large American companies. Christopher Cox, chairman of the US Securities and Exchange Commission had admitted that executive compensation had changed but the SEC's disclosure rules have not been able to keep up with the pace. Company disclosure obfuscates rather than provides the clarity regarding executive compensation. (Seattle Times, July 9, 2006) US President Barack Obama had implemented restrictions on pay for executives at investment banks bailed out by taxpayers so as to curb Wall Street excesses and reign in public anger before the White House requests for federal funds to bail out the financial sector. Obama described Wall Street bonuses as "shameful" and expressed "disgust" at executives who reward themselves for failure (Financial Times, February 4, 2009). Obama further said that America does not disparage wealth but what gets people upset are executives who reward themselves for failure, particularly when those rewards are subsidized by US taxpayers. He pegged the compensation of executives of companies that receive assistance from the government at US $500,000 ('345,000) a year. Executives can obtain restricted stock, which could not be sold before the government had been repaid. (Financial Times, February 4, 2009). A Chief Executive Officer of a Standard & Poor's 500 company received US $14.2 million dollars in total compensation annually in 2007, according to the Corporate Library, a corporate governance research firm. The median compensation package that executives had earned was US $8.8 million dollars. In addition, the AFL-CIO labor union recognized that a fair compensation system for executives and workers is essential to the establishment of a long-term corporate value. The chief executive officers of large U.S. companies averaged US $10.8 million dollars in total compensation in 2006, more than 364 times the pay of the average U.S. worker. (Financial Week, 2007) Options constitute an important portion of executive compensation. An aspect of these programs is the discreteness of vesting dates and option exercise dates. The option grants occur infrequently. Investment banks and executive compensation The business of an investment bank is doing huge deals. This deal making usually involves raising capital either debt or equity for clients and advising on merger and aquisition transactions. In addition, investment banks sell securities to institutional investors. They also trade for their own account. Investment banks

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