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The Coming Battle over Executive Pay

The Coming Battle over Executive Pay . By: Karen Dillon Harvard Business Review September 2009. GE CEO refused performance-based bonus The forfeit of this pay is not what bothers the CEO, but shareholders determining pay If Shareholders get a say in pay, what else will they want a say in

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The Coming Battle over Executive Pay

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  1. The Coming Battle over Executive Pay By: Karen Dillon Harvard Business Review September 2009

  2. GE CEO refused performance-based bonus • The forfeit of this pay is not what bothers the CEO, but shareholders determining pay • If Shareholders get a say in pay, what else will they want a say in • Working conditions? • Carbon footprint?

  3. Where did things go wrong • Outrage is not new • Economic crisis makes outrage stronger • CEO should not make more than 20% of average salary, but they earn up to 300% • Companies find loopholes on the taxes in the bonuses • List goes on and on…a lot to fuel the fire

  4. British Model • Shareholders have opinion but not binding • Until 2009 there were not a lot of active shareholders when it came to pay topics • True power lies within the independent advisory firms that make recommendations to shareholders • SHELL shareholders voted against a 1.9million dollar bonus for CEO because of recommendation

  5. What’s The Answer? • Era of stock options and preset bonuses is over, but no one agrees on what should come next • Only a few top executives have taken pay cuts or declined bonuses • In general, business leaders have been reluctant to participate in the discussion and have tried to keep their heads low • These companies need to take a stand and decide what is at stake and what they need to do about it

  6. Is Any Company Already on Track? • One company has linked performance-based compensation for executives to economic value added • No one receives a bonus based on individual performance • Separate long-term incentive program granting shares and options on basis of position and individual performance

  7. The Long View • There are hopes that this issue will blow over when the economy turns around • Compensation is a small portion of what should be worried about in the scheme of things • Need to worry more about the people below top level and keeping them motivated

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