Question

1. Do you think the fact that most American CEOs are paid so much more than rank-and-file employees suggest CEOs are overpaid? Explain.

2. Japanese CEOs generally receive much lower levels of compensation than CEOs in the United States. Does this imply that U.S. CEOs are overpaid?

3. Is it obvious that $10 per thousand is too low of an incentive to pay for CEOs? Explain.

4. Does the observation that the stock price increases when the firms increase incentive pay for CEOs suggest that most CEOs do not receive enough incentive compensation? Explain.

5. Are there any reasons why overpaying CEOs might be in the shareholders’ interest (i.e., maximize shareholder value)?

Answer 1

1.

In my opinion this does not necessarily suggests that they are overpaid. In order to answer to this question we should examine their responsibilities and the number of people available with such experiences in the labor market. According to Business Week's estimation in 2003, the CEOs in the 365 largest U.S firms are paid on average $8 million. Besides their stock option grants are much higher than average employees'. For example the CEO of Apple Computer, Steve Jobs, earned $1 in salary and received stock valued at $75 million in 2003. However these people are generally considered indispensable to their companies and earn their rewards with the strategic decisions they make. Some CEOs can be able to convert sinking firms into profitable and efficient organizations or can help the companies to earn billions of dollars with their expertise and strategic