The CEO Compensation Controversy
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Case Details:
Case Code : HROB020
Case Length : 12 Pages
Period : 1998 - 2001
Pub Date : 2003
Teaching Note : Available
Organization : Varied
Industry : Varied
Countries : India, USA
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Excerpts
High CEO Compensation - Justified or Not?
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According to a study conducted in the US in 1960, the average compensation
package of a CEO of a middle-sized company was double the salary ($100,000) of
the then President, Kennedy. In 1970, the CEO's salary rose to three times the
salary of President Nixon and by 2001, the average CEO compensation was 31 times
more than the salary of President Bush ($400,000).
According to media reports, by 2001, the average salary of a CEO in the US had
increased by an incredible 1,996% since the 1980s, while the average salary of a
factory worker had increased only by 66%.
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During the years 1990 to 2001, CEOs' average compensation had increased by
463%, as compared to an average worker's salary which went up only by 42%
(Refer Table II). The reports revealed that the gap between the salaries of
a CEO and an ordinary factory worker was very wide, and was expected to
widen further in the coming years...
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The Debate Intensifies
The global economic slump during the beginning of the 21st century
further intensified the debate on high CEO compensation. Analysts
felt that while corporate revenues and net profits were declining,
and share prices falling, there was no reason why CEOs should get a
raise in their compensation. According to a study conducted by
Forbes in 2002 for non-US based companies, seventeen specific
instances were reported where a CEO got a raise in compensation in
spite of falling stock prices and lower net incomes (Refer Table
IV). |
Analysts thought that paying high compensation to CEOs especially during a boom
in the economy was not a right decision. They argued that the high profits and
good performance of the stocks of a company during the boom resulted from the
environmental and other macro-economic variables, over which a CEO had no
control...
Exhibits
Exhibit I: Top Five Best Paid Indian Executives (2001)
Exhibit II: Corporates where CEO Compensation was Hiked in Spite of Downsizing
of Employees (1997)
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