United States Auto Industry Back on Top...of Ceo Pay
Kristen Reilly
Jeremy Lons
MBA-632-H3
Human Resource Management
Chapter 10 – Pay-for-Performance: Incentive Rewards
Case Study 1 – United States Auto Industry Back on TOP...of CEO Pay
1.0 Introduction Executive compensation has been at the forefront of discussion for a long period of time. Analyzed by academics, highlighted by the media, questioned by Congress, and scrutinized by the general public, the topic warrants much debate. In the 1990’s, total executive compensation increased substantially as companies began offering stock option programs; CEO’s of S&P 500 saw an average increase of 150%.1 While many top U.S. executives continued to receive enormous compensation options throughout the economic downturns of 2001 and 2008, none was more apparent than those in the Automotive Industry. While the Big Three, comprising of General Motors, Ford, and Chrysler, were facing insurmountable debt and possibly bankruptcy, top executives were receiving some of the highest reparations ever experienced by directors of the companies. The case study as presented in Managing Human Resources, Sixteenth Edition by Snell and Bohlander brings to mind the fact that during 2011, Ford CEO, Alan Mulally, received $53.5 million in stock awards.2 Many discussions can be derived from this statement. However, a basic understanding of modern corporate compensation structures must first be realized. Along with understanding these compensation structures, knowledge of the views on economic rent and optimal contracting must also be developed.
2.0 Corporate Compensation Structures
Corporate compensation structures have changed drastically within the past several decades. With an ever increasing gap between top executive and average production worker compensation payouts, controversy envelops this issue from every angle. In 1965 the average CEO earned 24.2 times the average production worker. In 2008, this ratio was 277.3 times more.3 Compensation to executives
Jeremy Lons
MBA-632-H3
Human Resource Management
Chapter 10 – Pay-for-Performance: Incentive Rewards
Case Study 1 – United States Auto Industry Back on TOP...of CEO Pay
1.0 Introduction Executive compensation has been at the forefront of discussion for a long period of time. Analyzed by academics, highlighted by the media, questioned by Congress, and scrutinized by the general public, the topic warrants much debate. In the 1990’s, total executive compensation increased substantially as companies began offering stock option programs; CEO’s of S&P 500 saw an average increase of 150%.1 While many top U.S. executives continued to receive enormous compensation options throughout the economic downturns of 2001 and 2008, none was more apparent than those in the Automotive Industry. While the Big Three, comprising of General Motors, Ford, and Chrysler, were facing insurmountable debt and possibly bankruptcy, top executives were receiving some of the highest reparations ever experienced by directors of the companies. The case study as presented in Managing Human Resources, Sixteenth Edition by Snell and Bohlander brings to mind the fact that during 2011, Ford CEO, Alan Mulally, received $53.5 million in stock awards.2 Many discussions can be derived from this statement. However, a basic understanding of modern corporate compensation structures must first be realized. Along with understanding these compensation structures, knowledge of the views on economic rent and optimal contracting must also be developed.
2.0 Corporate Compensation Structures
Corporate compensation structures have changed drastically within the past several decades. With an ever increasing gap between top executive and average production worker compensation payouts, controversy envelops this issue from every angle. In 1965 the average CEO earned 24.2 times the average production worker. In 2008, this ratio was 277.3 times more.3 Compensation to executives
References: 2. Snell, Scott, and Bohlander George. Managing Human Resources, 16th Edition. Mason: South-Western, 2013. 5. Executive Compensation - Fringe Benefits Audit Techniques Guide (02-2005). 04/03/12 Internal Revenue Service. 04/20/12 <http://www.irs.gov/businesses/corporations/article/0,,id=134943,00.html>. 6