Executive Compensation essays

Executive Compensation essays This is a modification to the stock options. At the core this strategy deals with rewarding stock options and cash to its executives. A typical example of how it works: A CEO receives a contingent grant of up to 5,000 performance shares at the beginning of the year. The total shareholder return relative to an industry peer group dictates how many shares the executive actually gets. If the shareholder return value relative to the industry peer group is below then the executive would not get any shares. It the return is well above that of its industry peers then the executive gets his share. The higher the return the more shares the executive actually earns. Performance shares are usually paid out in a combination of company stock and cash, however there might be a requirement with holding the stock for a period of time after it is awarded. The advantage of this approach is that by requiring the company to outperform its peers, the plan is supposed to reduce payoffs tied only to rising stock prices. The catch here is that if the stock price is flat over a period of time and the company does better than its peers, the executives would get pay out but not shared by its investors. Since the stock market is not part of the equation the volatile stock market is not going to dictate the executive pay. I think that the method of tying bonus to the return of investment is going to gain support. Since the market became more volatile, pay experts have said stock grants may be used more widely More and more institutional investors are becoming critical of stock grants, as they are an outright gift of shares to the executives. To summarize I think that the bonus and performance shares are a good alternative ...