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wsj-3-chapter2 corp gov

wsj-3-chapter2 corp gov - are changing their approach to...

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Kevin Flinchbaugh Corporate Governance/ Chapter 2 June 2, 2011 (Online edition) http://online.wsj.com/article/SB10001424052702303745304576357400805905990. By PAUL SONNE and KATHY GORDON The other day I read an article from the Wall Street Journal, which was called Tesco Cuts CEO Salary as It “Rebalances” Pay , was definitely related to Chapter 2 out of the Corporate Governance book where it talked about Executive Compensation/Base Salary and Bonus. As I learned from reading the book, there are two categories for solutions to agency problems: incentives and monitoring. It is necessary to align the executive incentives with the shareholders. This is important because managers will then act in ways to benefit shareholders, which will increase the value of the company’s stock. In the case of the article; Supermarket giant Tesco PLC, as well as, other U.K. retailing giants
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Unformatted text preview: are changing their approach to paying top managers in the industry. This comes as a result of the shareholders not being happy with the performance of Tesco posting an operation loss of £165 million in its U.S. branch and the chief executive, Tim Mason, receiving a multi-million pound performance payout. With lowering the base salary, the top managers will have to work towards a better work performance year if they plan on making the making up to difference (a 23% cut in base salary for the Chief Executive). The CEO will be required to hold shares of the company valuing four times his salary, while the executive director will be required to hold three times the value of his salary. This most certainly aligns the top manager’s incentives with the shareholders because both will profit from increasing the value of the company/shares....
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