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Recent research has shown an inverse relationship between CEO pay and corporate performance. Read the article “The Highest- Paid CEOs Are the Worst Performers, New Study Says (https://www.forbes.com/sites/susanadams/2014/06/16/the-highest-paid-ceos-are-the-worst-performers-new-study-says/#33e6d44a293a)” or related articles. Assume that you are the public relations professional who must respond to recent inquiries from major investors regarding the compensation and performance of your company’s CEO.
1. What information would you review as you prepare your statement? Would you share different information with the general public than you would with investors? If so, what information and why?
2. As a potential investor, how would the CEO’s compensation affect your decision of whether to invest in a company? Why or why not?
Expert Answer
ans 1=We can obtain info on a firm’s compensation setup in its regulatory documentation. Form DEF 14A, recorded with the SEC, gives summary charts of payments for a firm’s CEO & other top paid officials.
The decision by a firm about the total & type of payments to give a CEO is a business decision & isn’t under the dominion of the SEC. Instead , the SEC’s dominion spreads to disclosure—ensuring that the investing public is given complete & objective disclosure of material info to establish informed investing & voting choices .
The federal securities rules need firms to put the disclosed compensation of its top most officials to a voting by stockholders in ‘the say-on-pay voting’. This voting is only of advisory type. The general public does not participate in this voting.
Ans 2=While assessing the base salary & yearly bonus, investors prefer to see firms award a larger portion of pay as a bonus instead of as a base salary. The DEF 14A should give a clarification of how the bonus is being ascertained & what structure the reward assumes ( cash/ options / shares).
Info on Chief Executive Officer stock option holdings can also be obtained from the summary charts . The form reveals the rate of stock option awards & the total of awards got by executives per annum.
The proxy declaration gives figures on “beneficial ownership” of officials’ in the firm. The adjoining appendixes tell the amount of shares the official really owns & the amount that are unexercised stock options
