THE DEBATE OVER CEO COMPENSATION

(CASESTUDY NO. 4)

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

Ans. No, it's not true that American CEOs are overpaid just because they are paid much
more than rank-and-file employees Many CEOs whose incentive packages and pay
structure were discussed in the news are the chief executive officers of the big corporations.
These CEOs get paid above rank-and-file employees. Because of their reputation in
American and their responsibility to run businesses and achieve positive results related to
maximizing shareholder capital, in essence, the CEO's performance determines the
company's success. The majority of CEOs in the United States are genuine, hardworking
individuals who only remain with a company for a short time. CEOs that abuse company
benefits and bonuses are the ones that create a bad reputation for other CEOs.

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?

Ans. If Japanese CEOs have been paid a low salary and incentive packages it does not
imply that the U.S. CEOs are overpaid already. I'd guess that Japanese CEOs are paid less
because of their labor market and cultural traditions. CEOs are the public face of a company
in the United States. Japanese culture is based on collectivism, not on individualism, so they
collectively make decisions, so the CEO does not bear sole responsibility for the company's
results. Whereas, U.S. CEO has sole responsibility to makes decisions for running business
activities Therefore

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

Ans. No, I don’t think that it's quite low. Every company has set different performance
evaluation indicators for rewarding CEOS and employees. Having a bonus of $10 per
thousand is also based on some parameters that will measure the CEO’S ability to work
with the pay they receive. Besides, the incentive packages motivate CEOs to work as hard
as they possibly can. . This question is dependent on the amount of revenue an organization
generates to determine whether they paid low or high.

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

Ans. Not at all. I believe they are receiving the appropriate level of incentive pay. The
rise in stock prices, for example, will increase CEO rewards. That is a good incentive
package because they can only get what they deserve.

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

1. Being the CEO of a company, or even a small business, is a privilege, but the role and
power that comes with it should not be the determining factor of how much a CEO is
paid. The CEOS are overpaid to put their efforts into maximizing shareholders' wealth.
2. Secondly, they are accountable to shareholders for every action. So higher incentives put
pressure on CEOs to think critically before taking any decision.
3. Thirdly, comparing the remuneration of different economy CEOs is not reasonable. Not
even comparing two different industry CEOs will be reasonable. The CEO’s working
experience, successful projects, and skills are the basic perimeters of paying higher than
rank and file employees.
4. Moreover, CEOs receive a large sum of money as retention pay or bonuses. That is
without a doubt the case. If they don't, CEOs are unlikely to stay in a company for a
longer period.
5. Lastly, the CEO may hold one of the highest positions in a company, but they are also in
danger, even in danger of losing their lives, because everyone wants that job.