Question

You serve on your organization's compensation committee, and you are meeting to negotiate the retirement package of your CEO, who is retiring after a very successful 40 year career with the organization. This person has served as CEO for the last 20 of those 40 years, during which time revenues were quadrupled and gross profit increased by over 300%. The CEO's representative has proposed the following retirement package: Unlimited access to the company's New York apartment Unlimited use of the corporate jet and company limousine service Courtside tickets to the New York Knicks games Box seats at Yankee Stadium VIP seats at French Open, US Open, and Wimbledon An annual consulting contract of $80,000 for the first 5 days, and an additional $17,500 for each day after Reimbursement for all professional services Stock options worth $200 million 1) Propose a compensation package you think is fair and equitable

Answer 1

Answer:

As per the given Question

One would assume that the CEO enjoyed these benefits when he was the CEO. The only change would have been the remuneration. He would have received a total annual remuneration including benefits would have been in millions of dollars. This should have enabled him to accumulate a good nest-egg for his retirement.

The arguments for would be that why deprive him of his life-style that he had been used to. This is being the case the only thing that was being cut was his salary. It was now a maximum of about $4.4 million per annum. However one has to understand that this is fair since he does not have a direct responsibility in the operations of the company.

The arguments against are much more direct. One feels that any of the benefits that the ex-CEO enjoys in kind have to be linked to his performance as a consultant. One cannot give him the use of the NY apartment, limousines and corporate jet if he does not deliver single days consultation. Also who is going to judge the quality and effectiveness of his consultative advice? Also after 20 years of high salary and benefits, does he still really require the free tickets to tennis, baseball and basketball games? Therefore one feels that the following should be approved: 1) The consultation fee as laid out in the case. 2) Reimbursement of professional expenses.. 3) Use of the NY apartment, company limousines and corporate jet if his consultative assignment requires him to use them. This has to be on a purely need basis and approved by a designated corporate officer 4) Stock options are not really required. Also the figure of $2000 million is almost 45 times his total consultation fee. At the most it should be equal to his remuneration or around $5 million. This is what one feels would be the fair remuneration and benefits packages that one could approve

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