NEWSWIRE - November 19, 2001
Topic: Executive Compensation
Source: "The Gravy Train Just Got Derailed: Sorry, CEOs-'Pay for Performance' is Back in Vogue," by Louis Lavelle, Business Week, November 19, 2001, pages 118-120.
Synopsis of Article: The article discusses the likely decline in CEO compensation this year due to reductions in the value of stock options and performance bonuses. One consultant forecasts that CEO pay is likely to fall by one-third, with the average falling below the $1 million mark for the first time since the early 1990s. This is not surprising, since a Business Week survey 0f 365 large U.S. companies with average CEO pay of $13.1 million finds that almost 80% of the pay comes from bonuses and stock options. The article provides an opportunity to discuss executive compensation, current trends in compensation, and how the structure of compensation contracts can impact management incentives.
Questions and Teaching Note:
- Why is CEO pay expected to decline this year?
- Should CEOs be punished for poor performance?
- Should CEOs be punished for poor performance caused by
events beyond their control, for example, airline executives
have seen their company's stock prices fall as a result
of the September 11th attack? How could options be structured
to provide an incentive in this case?
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