compensating executives

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Compensating Executives. Chapter # 13. What is executive status?. IRS recognizes two groups Highly compensated Very responsible position 5% owner sometime during year Paid $100,000 or more yearly Key Employee $145,000 up Responsible role . - PowerPoint PPT Presentation

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Compensating Executives

Compensating ExecutivesChapter # 13What is executive status?IRS recognizes two groups

Highly compensated Very responsible position5% owner sometime during yearPaid $100,000 or more yearlyKey Employee$145,000 up Responsible role Long term and short term Pay

CEOs sell their services

CEOs Can hired and use their own compensation consultants.

Conflict of interestFired 119.089 employees last year (2007)Who pays? stockholders Types of Executive Pay PackagesMain Components

Annual payStock OptionsGolden ParachutesPerquisites and Enhanced BenefitsBonusesBase (annual) PayBroader rangeNo formal pay structureIRS lets firm deduct CEO pay as tax write off up top $1,000,000.Base pay is smallest part of total package

BonusesSingle pay for performanceDiscretionaryDepend upon profitsFuture opportunitiesPerformance contingent bonusesPredetermined allocation bonusesTarget plan bonusNo bonus if profits fall below a certain amount

Short term incentives

Deferred Core CompensationsCompany stockPay given at future dateIdea is to create sense of ownershipAlign goals of exec to goals of firmTax advantage for CEO Deferred until retirement10Types of incentivesStock optionsHave to pay cap gains in futureNon Statutory stock optionsTax paid upon receiptRestricted StocksCEO has to return stock when leaving At original price. Idea is to pocket gains11Types continuedPhantom, stocksHypothetical stocks.Discount stock optionStock given at lower than market valueStock appreciation rightsIncome is taken at end of a certain period of time12Golden ParachutesIRS considersIt businessExpense

YOURE FIRED

Platinum parachutesYourre outa here !!!!!Before contract overSeveranceContinued benefitsStocksExample Bancorp73.6 + 24.4 mil cash stocks+ free health care+ 40,000 month consulting

Tighter Regulations of Deferred PlansEX: EnronExec withdrew cash out firm before bankrupt.2002 Sabanes Oxley ActFinancial disclosure or penalty to execsFull audits

Other PerksExtra insuranceCorporate jetsSupplemental retirement plansCountry club membershipsVacation homesTickets How is Executive pay Set?IndividualsGroupsConsultantsPay committeesBoards of Directors

Theories about exec payAgency Theory

Tournament Theory

Social Comparison Theory

Security Exchange Commission DisclosureLook #336

Full disclosure of four top level execs

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