TMTs & Executive Compensation

Top Management Team

• Who are they?

Top Management Team

• What do they do (key activities)?

Executive Decision Making

RationalDecision-Making

Model

Decision Biases

• Anchoring and adjustment• Availability bias• Escalation of commitment• Fundamental attribution error

Decision Biases

• Correlation vs. causation• Overconfidence• Sampling bias

(selection bias)

Executive Compensation

In most publicly traded firms, CEO compensation generally includes:

• Guaranteed salary• Cash bonus• Stock options• Perks

Executive Compensation• How much do they make?• Highest paid 2014 CEOs:

• McKesson $131M• Lauren $67M• Vornado Realty $64M• Kinder Morgan $61M

• Average CEOs S&P 500• Overall U.S. $10.5M• Alabama $4.5M

• Average TMT (incl CEOs)• Overall U.S. $6.1M

Executive Compensation

Are CEOs paid too much?