Case Studies for Management (taken at various books and websites)
Case #26
THE HOME DEPOT
In 2000, the new CEO of The Home Depot entered into an employment contract that eventually awarded him more than $200 million during a five-year period. A portion of this amount was given to the CEO in the form of a guaranteed annual bonus of at least $3 million a year. The provision of a guaranteed minimum annual bonus is considered rare by industry standards — a study by the Delves Group indicates that The Home Depot CEO was the only CEO of the 200 largest U.S. revenue companies to have such an agreement. While examples of guaranteed payment exist, the length and size of the payments is considered uncommon. In 2005, the CEO received his guaranteed bonus while the amount of money allotted to the non-salaried employee bonus program decreased by 50 percent.
Questions:
1. How does expected performance relate to the current business outlook?
2. What are the results that need to be achieved in the short and long term?
3. Is senior management prepared to support and communicate this program or issue?
4. Are compensation committee members/board of director members familiar with similar programs or issues?
5. Has the compensation committee/board of directors reviewed similar compensation programs or issues in the past?
Case #27
ENRON CORP
In the late 1990s and into 2001, Enron Corp. provided its executives with compensation packages that included equity stakes in business units. Although many companies use equity in rewards programs, the amounts provided to Enron executives were unusually large (greater than 5 percent) and not tied to long-term performance because executives were allowed to convert their equity into either common stock or receive cash. The CEO and president of a subsidiary received more than $310 million by converting equity stakes into cash. In addition to the equity stakes, Enron rewarded two executives large cash bonuses of $54 million and $42 million. The chairman/chief executive of a
THE HOME DEPOT
In 2000, the new CEO of The Home Depot entered into an employment contract that eventually awarded him more than $200 million during a five-year period. A portion of this amount was given to the CEO in the form of a guaranteed annual bonus of at least $3 million a year. The provision of a guaranteed minimum annual bonus is considered rare by industry standards — a study by the Delves Group indicates that The Home Depot CEO was the only CEO of the 200 largest U.S. revenue companies to have such an agreement. While examples of guaranteed payment exist, the length and size of the payments is considered uncommon. In 2005, the CEO received his guaranteed bonus while the amount of money allotted to the non-salaried employee bonus program decreased by 50 percent.
Questions:
1. How does expected performance relate to the current business outlook?
2. What are the results that need to be achieved in the short and long term?
3. Is senior management prepared to support and communicate this program or issue?
4. Are compensation committee members/board of director members familiar with similar programs or issues?
5. Has the compensation committee/board of directors reviewed similar compensation programs or issues in the past?
Case #27
ENRON CORP
In the late 1990s and into 2001, Enron Corp. provided its executives with compensation packages that included equity stakes in business units. Although many companies use equity in rewards programs, the amounts provided to Enron executives were unusually large (greater than 5 percent) and not tied to long-term performance because executives were allowed to convert their equity into either common stock or receive cash. The CEO and president of a subsidiary received more than $310 million by converting equity stakes into cash. In addition to the equity stakes, Enron rewarded two executives large cash bonuses of $54 million and $42 million. The chairman/chief executive of a