Executive Compensation
This is a modification to the stock options. At the corethis strategy deals with rewarding stock options andcash to its executives. A typical example of how itworks: A CEO receives a contingent grant of up to 5,000performance shares at the beginning of the year. Thetotal shareholder return relative to an industry peergroup dictates how many shares the executive actuallygets. If the shareholder return value relative to the
To summarize I think thatthe bonus and performance shares are a good alternativefor executive compensation. Since the stock market is not part of theequation the volatile stock market is not going todictate the executive pay. The higher the return the more shares the executiveactually earns. The catch hereis that if the stock price is flat over a period of timeand the company does better than its peers, theexecutives would get pay out but not shared by itsinvestors. Since the market became more volatile, payexperts have said stock grants may be used more widelyand could supplant options. It the return is well above that ofits industry peers then the executive gets his share. peer group is below then the executive wouldnot get any shares. The advantage ofthis approach is that by requiring the company tooutperform its peers, the plan is supposed to reducepayoffs tied only to rising stock prices. Performance shares are usually paid outin a combination of company stock and cash, howeverthere might be a requirement with holding the stock fora period of time after it is awarded. More and more institutional investors are becomingcritical of stock grants, as they are an outright giftof shares to the executives. I think that the method oftying bonus to the return of investment is going to gainsupport.
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Acceptance Essays
