Ceo Compensation
Prof. Bob Maddamma
From:
Priya Shenoy
Chairman of the Board,
XYZ Corporation
Date: October 17th, 2013
Sub: Recommendation for modifications on our current CEO/President’s compensation program from current stock option plan to equity share performance
I thank you for providing me with the necessary inputs for the changes to be made to our current CEO/President’s compensation program. The main objective of this activity is to transform the current salary stock option plan to equity share performance. After reading Martin Pretty’s recent article, “Where dividends top pay, CEOs tend to outperform,” in the October 17, 2012 issue of The Sydney Morning Herald, let me share my assessment of the pros and cons of approaching and materializing this plan.
My evaluations and decisions are targeted towards maximizing the value of the firm. The goal of our Fortune 500 Company should be to focus our interests in taking our stock price to greater heights. Below are a few key points to consider before we take the next step in replacing the current stock option plan by the equity share performance.
• More equity compels the management to align their goals with shareholders. Hence, vesting powers in the management direct equity increases their motives of increasing the firm’s stock price. This leads to increasing the value of the firm.
Nevertheless, the shareholders are enriched by large benefits, but the long-term incentives of this plan can be realized only through the following considerations:
• Management has an incentive to consider short-term growth instead of long-term stability. Since their compensation is tied