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Pros And Cons Of Executive Compensation

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EXECUTIVE COMPENSATION
Executive compensation is a broad term which comprises of financial compensation and non-financial rewards given to an executive from their firm for their services. This package is decided by a company’s Board of Directors (consisting of independent directors). It should be designed in a manner which incentivizes the executives and motivates them to perform in accordance with the company’s goals and its long term growth.
These packages generally include a mix of short-term incentives (including salary, annual bonus, benefits, and perquisites) and long-term incentives (including stock options and restricted shares). E.g. Microsoft CEO Satya Nadella received a compensation package of $84.3 million for the software maker’s …show more content…

E.g. the decisions taken at Enron to create off-balance-sheet transactions (disguising that failed corporation’s true, deteriorating results)
• When the board overpays a CEO, it’s the shareholders who lose a share of the profits which could have been either shareholder dividends or capital gains are instead going into the CEO coffers.
• Though there is a divide that executives incentive plan actually motivated them to cause their companies to perform better, if company results improved for any reason (including pure serendipity), the executives received higher pay: cause and effect didn’t matter. The company’s performance itself drove the incentive compensation—whether under the control of the CEO and his team or not.
• Even if you want to retain top executives, huge amount of compensation at times of recession is not …show more content…

AIG got a credit facility of $85 billion from the Federal Reserve in exchange for warrants for a 79.9% equity stake. After that AIG has been kept afloat by more than $170 billion in federal assistance since September 2008. The uproar over AIG pay reached a new level amid revelations that it rewarded employees with $450 million in bonuses for 2008—when its stock fell from $57.14 a share to $1.57 a share. Worse, $165 million of the payments were in the form of “retention” bonuses to employees of its financial products division, which sold the complex derivatives at the heart of the company’s financial troubles. Even more ironic, 52 of the employees quit after receiving their “retention” bonuses. Martin J. Sullivan, AIG’s CEO, who collected a severance package of nearly $50 million when he was ousted at a board meeting on June 15, 2008, when it came under investigation by the

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