Case

Question 1

Executive Compensation Methods

Answer 1

(1) Annual base salary

(2) Annual bonus pay contingent on executives’ performance
- Promoting incentives and motivating to exert more effort
- Criteria (i.e., performance metrics): NI, CF, Rev., Ret., etc.
(3) Equity based compensation (1980s ~ 1990s)
- Incentivizing the managers even more!
- Options and stocks normally vesting in 3 ~ 4 years.
(4) Debt-like compensation (2010s ~)
- Deferred compensations (5 years↑), Pensions (long-term) - Making executives similar to debt-holders (as well as SH)

Question 2

Sarbanes-Oxley Act

Answer 2

• Audit Committee (under BOD) requirements
• The NYSE and Nasdaq listing rules require that an audit committee have a minimum of three directors and each director must be “independent” (i.e., outside directors)!!!
• Committee members should meet certain financial expertise requirements.

Question 3

Dodd-Frank Act

Answer 3

• Compensation Committee (under BOD) requirements
• SEC imposed the requirement to all the listed companies in NYSE (that are subject to its corporate governance listing standards) have a compensation committee composed entirely of independent directors
  with a written committee charter that addresses all of the duties.

Question 4

Clawback Provisions

Answer 4

Provisions that authorize the board of directors to recoup the compensation of executives if financial statements have been misstated or if managers have engaged in fraudulent misconduct!