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Finance & Accounts

 

Is it advisable to fix ceiling on Executive compensation ?

Created by : R.V.Seckar , Company Secretary , Finance , Accounting, Chandra Group  | 11 11 2009 10:55:57 +0000
Functional Area : Performance(Corporate Finance)
Keywords : performance bonus is the main reason for publishing results that match with wall street's expectations. is it necessary to fix ceiling or restriction on ceo's compensation? recent corporate frauds and financial crisis reveal that wrong decisions of ceo made the company to come close to the bankruptcy?
Activity:  127 views;  last activity : 07 06 2010 20:18:09 +0000

The past history shows that CEO bonuses and salaries have tempted to take wrong decisions . For instance , in the recent subprime mortgage crisis , For instance , an aggregate of $3.6 billion was paid to the CEO’s of the seven largest investment banks from 2004-2007 for their performance. When a financial institution goes to doldrums due to the wrong decision of CEOs, then they should be compelled to pay back when their institutions are bailed out.

As a revamping plan, Bob Nardelli, CEO of Chrysler agreed to work for Chrysler at just $1 per year from 2007 onwards. It is to be noted that there is virtually no other benefits like health insurance, life insurance, restricted stock or stock options scheme, bonus and salary until Chrysler return to profitability.

I strongly recommend that there can be no restriction on CEO's salary but they should be asked to repay their salary and bonuses if the company failed due to their misconceived policies.

Regards

R.V.Seckar
Please visit my blog: http://rvsekar2000.tigblog.org/post/684421

 
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How would you ensure that the CEOs return the money they had received?

 

Yes .It can be done. A clause in the CEO appointment letter should include that any stock bonus and monetary incentive paid on solely on performance basis could have to be repaid in case if it is proved later that it has been enriched by perusing fraudulent measures like fictitious revenues ,
improper disclosures within financial statements ,improper asset valuation ,
skimming ,understatement of liabilities, timing differences ,bribery and Illegal gratuities .

A CEO of a company is not an ordinary employee . He might have sturdy net-worth due to high compensation paid by the company. Hence ,it would not be difficult to recoup the Bonus payments from CEO's charged with fraudulent activities.

I wish to recall that as a part of settlement with the SEC (Stock Exchange Commission), WorldCom paid $ 750 million as fines. CEO of WorldCom, Ebbers faced a charge with a fine of $ 8.25 million and an imprisonment of 85 years in jail!

US is having very stringent laws. If India adopts such laws , Raju's would have been deterred to report fictitious cash balances in their balance sheet.

Regards,

R.V.Seckar

Please visit my blog: http://rvsekar2000.tigblog.org/post/684421
By R.V.Seckar , Company Secretary , Finance , Accounting, Chandra Group  | 11 13 2009 06:45:26 +0000
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I strongly recommend that there can be no restriction on CEO's salary but they should be asked to repay their salary and bonuses if the company failed due to their misconceived policies.


By R.V.Seckar , Company Secretary , Finance , Accounting, Chandra Group  | 11 11 2009 10:55:57 +0000
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How would you ensure that the CEOs return the money they had received?   Yes .It can be done. A clause in the CEO appointment letter should include that any stock bonus and monetary incentive paid on solely on performance basis could have to be repaid...
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