Both individuals and institutional stockholders as

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Unformatted text preview: stock given to management as a result of meeting the stated performance goals, are often used in these plans. Another form of performance-based compensation is cash bonuses, cash payments tied to the achievement of certain performance goals. The Current View of Management Compensation The execution of many compensation plans has been closely scrutinized in recent years. Both individuals and institutional stockholders, as well as the Securities and Exchange Commission (SEC), have publicly questioned the appropriateness of the multimillion-dollar compensation packages that many corporate executives receive. For example, the three highest-paid CEOs in 2001 were (1) Lawrence Ellison, of Oracle, who earned $706.1 million; (2) Jozef Straus, of JDS Uniphase, who earned $150.8 million; and (3) Howard Solomon, of Forest Laboratories, who earned $148.5 million. Tenth on the same list was Timothy Koogle, of Yahoo!, who earned $64.6 million. During 2001, the compensation of the average CEO of a major U.S. corporation declined by about 16 percent from 2000. CEOs of 365 of the largest U.S. companies surveyed by Business Week, using data from Standard & Poor’s EXECUCOMP, earned an average of $11 million in total compensation; the average for the 20 highest paid CEOs was $112.5 million. Recent studies have failed to find a strong relationship between CEO compensation and share price. Publicity surrounding these large compensation packages (without corresponding share price performance) is expected to drive down 7. Detailed discussion of the important aspects of corporate takeovers is included in Chapter 17, “Mergers, LBOs, Divestitures, and Business Failure.” CHAPTER 1 The Role and Environment of Managerial Finance 21 executive compensation in the future. Contributing to this publicity is the SEC requirement that publicly traded companies disclose to shareholders and others both the amount of compensation to their highest paid executives and the method used to determine it. At th...
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