Executive Compensation Package, Stock Options - 3300 Words

Executive compensation packages have been used both successfully and unsuccessfully to solve the principal-agent problem facing corporations these days. In this study, we focus on a specific element of an executive compensation package, stock options. The use of stock options as a form of senior executive compensation has been studied extensively to be a testament to the success of it’s ability to realign executive with shareholder interests. However, as the study reveals, prior to the Sarbanes-Oxley Act of 2002, there were many problems with the usage of stock options within corporations that had a weak corporate governance structure. Problems included executive’s incentives to focus on short run profit, take on risky business strategies, and manipulations (legal and illegal) to fulfill executive self-interests. While it is difficult to measure the true effect of stock option’s influence on executive performance and behaviors, we see that the problems with stock option usage far outweigh the benefits of stock options prior to the implementation of the Sarbanes-Oxley Act. In the ideal corporate governance system, the definition of a good senior management executive is one that takes into consideration shareholders’ needs above his own. They work diligently to run the corporation both on a day to day basis and to ensure its success in the long run. However, there are often many incentives that disalign the interests between the shareholders (principal) and executivesShow MoreRelatedA Brief Note On Executive Compensation And Non Monetary Benefits1444 Words   |  6 PagesThe term compensation refers to all forms of financial returns and tangible benefits that employees receive in exchange for their time, talents, efforts, performance, and results (Bernardin, 2013). Executive compensation is defined as the financial payments and non-monetary benefits provided to high level management in exchange for their work on behalf of an organization. The types of employees that are typically paid with executive compensation packages include corporate pres idents, chief executiveRead MoreThe Relationship Between Executive Compensation And Firm Performance1399 Words   |  6 Pages INTRODUCTION The relationship between executive compensation and firm performance is a topic of major concern amongst academics, professionals, and regulators. In an effort to identify a relationship between executive pay and firm performance, scholars have conducted research since 1925 and have established that compensation packages are the primary means of incentivizing managers to achieve certain financial targets or goals. These goals include certain performance measures that can be brokenRead MoreExecutive Officer Chief Executive Officers1692 Words   |  7 PagesChief Executive Officers (which will be referred to as CEOs for the remainder of this paper) is arguably the most prestigious position an individual can hold in the business world. There is no disputing the high level of responsibility necessary to manage the operations and resources of any company, while also being the key figure between the company’s board of directors and the stakeholders which are effected as a result of the company’s actions. Despite the high level of responsibility, it is worthRead MoreUs Auto Industry Back on Top1658 Words   |  7 PagesINTRODUCTION Executive compensation has been at the forefront of discussion for a long period of time. Analyzed by academics, highlighted by the media, questioned by Congress, and scrutinized by the general public, the topic warrants much debate. In the 1990’s, total executive compensation increased substantially as companies began offering stock option programs; CEO’s of Samp;P 500 saw an average increase of 150%. While many top U.S. executives continued to receive enormous compensation options throughoutRead MoreExecutive Compensation: the Ethical and Impact Challenge1629 Words   |  7 PagesExecutive Compensation: The Ethical and Impact Challenge                              Executive Compensation: The Ethical and Impact Challenge Executive compensation is defined as the reward given to corporate executive employees for their job performance. Corporate executive employees are the higher echelon company employees and may include the chief financial officersRead MoreEvaluating The Driving Force Of A Corporation s Success Essay1014 Words   |  5 Pagesinterests are maintained through executive compensation packages that engage managers and executives to perform with regard to the best interests of shareholders. These executives are being incentivized through bonuses in the form of huge bonuses, stock options and awards. Many believe these rewards have become obscene and are in no way reflective of executive level performance. History of Executive Compensation Levels Looking back 50 years, chief executives were making approximately 20 timesRead MoreSally Jameson Essays613 Words   |  3 PagesProfessor: Lal, Chugh Sally Jameson A. Value of each individual compensation package Stock Option Compensation In order to forecast the value of the stock option package, determining the call price is initially. There are two approaches to calculate the call price for each option, black-scholes and binominal pricing. In addition, the current stock price, exercise price, time of option, annualized interest rate, and the riskiness of the stock are the inputs for either approach. In the market, the currentRead MoreName Your Price: Compensation Negotiation at Whole Health946 Words   |  4 PagesName Your Price: Compensation Negotiation at Whole Health This case study is about a student Monroe davies who is in his second year at Harvard Business school and Jim Hummer who is the CEO of a company named Whole Health Management. Jim has met Monroe before and knows that Monore is interested in entering the whole health management. Jim has asked Monroe to design a compensation package for himself as Director Business Operations because Jim wanted to assess how Monroe reacts when faced byRead MoreName Your Price: Compensation Negotiation at Whole Health940 Words   |  4 PagesName Your Price: Compensation Negotiation at Whole Health This case study is about a student Monroe davies who is in his second year at Harvard Business school and Jim Hummer who is the CEO of a company named Whole Health Management. Jim has met Monroe before and knows that Monore is interested in entering the whole health management. Jim has asked Monroe to design a compensation package for himself as Director Business Operations because Jim wanted to assess how Monroe reacts when faced by unexpectedRead MoreReport on in a World of Pay944 Words   |  4 PagesJurgen Mehr, is irritated about the salary demands of the American executive he wants to hire. She would be a brilliant catch. But the salary she wants is nearly as much as Mehrs. Renate Schmidt is now in trouble with this matter. She is in dilemma to take decision of making compensation package for Anne Prevost. Since 1996, Typware has ventured aggressively into international markets. The consultants who helped negotiate compensation for overseas employees’ recommended variable standards depending