Question

In regards to my take on CEO compensation, I believe if you are the founder of a company and you took on the risk with your capital and hard work, you deserve to be richly rewarded. These people include Bill Gates, Steve jobs, Warren Buffet, the Google boys, and other entrepreneurs. Remember, they invented their product and worked to create a market. On the other hand, I have a problem with CEOs that take over for established companies and are richly rewarded (often in the hundreds of millions) for just minding the ship. Remember, a CEO of a major company is not an entrepreneur. They are employees like you and me (unless they are the founder). A CEOs job of a major corporation is to primarily deal with strategic decisions including the allocation of capital into the most productive growing businesses. People like Michael Eisner, Jack Welch, Wall Street banking CEOs and others are not entrepreneurs. They did not start these companies. They did climb the ladder of success in these big companies and deserve to be compensated fairly, but the stock option and restricted stock compensation has gone too far. If they do a great job, they receive enormous pay. If they perform below their market benchmark, many still receive huge pay packages. Michael Eisner has exercised around a billion dollars worth of stock options during his tenure. Also, paying restricted stock or stock options to CEOs should be tied to long term performance goals (such as stock price, revenue, free cash flow) instead of allowing these annual cash outs for short term performance goals. WHAT ARE YOUR THOUGHTS ON THIS?

Answer 1

The CEO is a representative of the shareholders of the company. In this context, his main duty is to maximize the shareholders wealth. Undoubtedly a CEO should be richly rewarded for the work done and for steering the company towards profitability and success. However in times of losses, the CEO should consider the shareholders interests before his own. It would be unethical for the CEO to draw the same amount of compensation in times of losses, not because he is responsible for the losses but because he is responsible for the wealth of the shareholders and is acting as their agent. I agree with the idea that the CEO’s compensation should be linked to the performance of the company since that his main role.