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367 Term paper - Andrew Rapaport Econ 367 May 6 2009 CEO...

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Andrew Rapaport Econ 367 May 6, 2009 CEO Compensation A prominent issue that has received much media coverage lately is the overwhelmingly high salaries and other forms of compensation paid to CEOs and executives of companies. Many people criticize the amount of money being paid to CEOs being that the global economy is in such a severe recession. US CEO’s are paid twice as much as those in the UK and 3 times as much as CEOs in Japan.(“Are CEO’s Paid too much..”) Since the demise of companies such as Enron, Sally Mae, AIG, Freddy Mac, Adelphia, and Tyco there has been a major loss of confidence in America’s corporate leaders. Many CEO’s however do defend themselves by saying that you cannot blame them all for a few rotten apples. The median annual salary for CEO’s has slowly risen from $0.7 million to about $1 million from 1995 to 2005, stock options and grants on average rose by 13% a year from $1.3 million to $4.4 million. (“Are CEO’s Paid too much..”) Adding stock and stock options to CEO pay is intended to support good stewardship. That’s why it is referred to as “performance based pay”. CEO’s have three main jobs. First, they are the leader of the company. They establish and direct the mission and vision of the company and keep the company pointed in the right direction to reach the goals that have been set by the CEO. Second, the CEO takes on the role of senior project manager for the company. They are responsible for directing the operational activities by allocating and designating the use of company resources. These resources can be anything from labor to capital. The CEO is also responsible for designing and following through
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with the company’s plan of operations. Finally, the CEO is a coach. As a coach the CEO selects team members for the project and improves the team’s performance through continual coaching. Through these roles the CEO performs many tasks that are important in order for the company to succeed. With the help of the team members chosen by the CEO a strategy and plan can be formulated. The CEO also organizes and guides the team members through the plan that was originally designed. All of the schedules are planned out and delegated to appropriate team members as well as allocating the resources and capital needed to complete tasks. Priorities and tasks for the projects are set by the CEO and he then decides when they are required to be completed. If the plan needs to be revised during execution the CEO is responsible making sure that proper steps are taken to make sure that the right people are in the right position, and if it’s necessary the CEO decides if certain team members require more training to better complete their assigned tasks. The CEO also helps with solving problems that come up during the course of operations. The CEO also is responsible for delegating accountability and responsibility to team members. By doing this the members of the team are clearly given a role and core set of
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