American Industry and CEO compensation
Executive compensation has been a matter of much research and debate in the recent times. ... It is generally believed that compensation packages for the top executives should motivate them to increase shareholder value. ... Here, we will try to address some of these questions such as what are the various components which makes up an executive’s compensation package and how have these changed over time. ... The history of formulating a policy for executive compensation dates back to time immemorial. ... when Julius Caesar set out to build a truly professional army, he devised compensation programs for his soldiers to reinforce his strategy. ... It is pretty evident that the compensation programs of today have been highly influenced by this ancient system. ... Salaries and bonuses, which are considered to be the “executives traditional rewards represent in many instances the largest proportion of his total compensation”(Lewellen 13). ... The term ‘bonus’ however may not just include awards made in a given year as remuneration for the commendable work the executive has done in the same year but may also include “incentive compensation” by which a total amount is promised to the executive but is paid to him through cash installments over several years (Lewellen 13). ... This list can go on and on, however, we have touched the main components of a typical CEO’s pay packet. ... The present-day CEOs: The CEOs of today are the lucky ones in the industry. ... However, 2001 was a crucial, decision-making year as the vital question was that should CEO compensation really be linked to corporate performance. ... The whole industry seemed to have split itself into two. As Leonhardt comments in his article in the New York Times, “While half of the industry which appears to believe in paying the CEO for his performance, cut his pay for the first time in years, the other half, which seems to believe in just paying a lot, reacted to a year of recession and war by creating the impression they had reduced pay without actually doing so”. Source: Pearl Meyer & Partners Thus while Philip Condit of Boeing and James Sinegal of Costco Wholesale suffered the financial consequences of a disappointing year when their pays fell by 78 per cent and 33 per cent respectively, Kenneth Chenault at American Express, Douglas Daft at Coca-Cola and John Chambers at Cisco Systems received big raises or bonuses even though they were no where close to the targets they had set for themselves for the year. ... However, pay for the typical CEO continued to climb: The median compensation rose by 7 per cent (about twice the raise that the average American worker received) while profits fell 35 per cent in a typical company.