Free Form Friday: Executive Compensation

Today’s

Vocabulary

(1) Compensation: Usually money, but anything someone is given to do a job.

If we want to attract the best employees, we need to increase compensation.

(2) Big bucks: Bucks means dollars, so we often talk about “big bucks” to mean a lot of money.

I don’t get paid big bucks, but I love my job.

(3) Objectively: The opposite of subjectively–it means to think about something without emotions or personal opinions

I can’t think about this deal objectively because I’m so angry with her.

Today’s

Questions

1. Why should executive compensation be put at risk?

a. It’s only fair for executives to be able to lose their money.

b. So that executives can lose something and are therefore motivated to work well.

c. If executives can lose their money, they’ll think about the long-term more.

2. What’s one way compensation could encourage long-term thinking?

a. It could be lost if the executive does a bad job

b. It could be linked with low pay at the company

c. It could increase for each good year

3. What’s one way to make executive pay fair?

a. It could be linked with low pay at the company

b. Executives could get paid well only if the company does well

c. It could be linked with long-term thinking

7 ________________________

Free Form Friday

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JHML1103-6609 By Jeremy Schaar

Today on the blog, we’ll look at an article on CEO pay. You’ll learn some interesting ideas about how to determine CEO pay. You’ll also learn some useful vocabulary.

In this post at Strategy+Business, James O’Toole discusses CEO pay. He begins by noting that SEC (Securities and Exchange Commission) regulators are going to force companies to become more transparent about CEO pay. But he would prefer if company boards would just do a better job with executive compensation. To that end he suggests three principles.

1. “Put executive money at risk”

To be “at risk” means that something can be lost. He gives a nice example of going to a casino. If you’re playing with your money, then you’re cautious. But if the casino gives you money, then you don’t care. You can only win, you can’t lose. With stock options, he feels executives have nothing to lose, they can only win. He encourages companies to give actual stock instead of stock options.

2. “Compensation needs to encourage long-term thinking.”

To encourage something is to push someone to something. He thinks that bonuses are good motivators, but that they should increase with each year of performance in order to encourage long-term thinking (e.g. 10% for one good year, 20% for two good years, etc.)

3. “The third principle is fairness. I suspect there would be less public outcry about executive compensation if those big bucks were seen as objectively earned.”

“Public outcry” is when a lot of people complain about something. He doesn’t know what fair pay is, but it does seem unfair for a CEO to make $25 million when a secretary makes $25,000. But that’s not his real point. He thinks the big problem is when executives get a lot of money after the company does really bad. Fair means that if the company does well, so does the executive. If the company does bad, the executives don’t get millions of dollars.

What do you think? As always, if you have any questions, please post them on the blog, Facebook, or Twitter.

And, by the way, if you have trouble understanding the blogs or LinkedIn groups, send me a message. We teach lots of students Business English and I’m sure we could help you too!

CHECK YOUR ANSWERS!

Answers To Today’s Questions

B, C, B

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You Can Do It All Yourself But You Dont Have To

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