compensation

Question 1

what are the main consernais in defening a renumeration policy?

Answer 1

• base salaries vs Variable salaries ( relative size)
  -balancing Short term and Long term compensation
  what defines a good performance mesure-
  - accounting vs market
  - critical sucess factors
  - unadjusted, market adjusted, industry adjusted, risk
  adjusted

Question 2

Key issues when conssidering a good renumeration Policy?

Answer 2

balacing:
performance
accountability
rewards

Question 3

Short-term bonuses

Answer 3

Upper limit
– Keep compensations leveled
– Limit opportunistic behavior
▪ Manipulation
▪ Short term goals that sacrifice future performance
– It might be just luck
– Compensation plan poorly designed

Question 4

Long-term rewards

Answer 4

• can be very impotant in some industries ( Rand D idustries)
• Long term Bonus plans and share based plans
• share option
• share ownership

Question 5

share options

Answer 5

benefeits:
-they dont require any initial cost
- so they can be helfull in strat up to atrack skillful managers, when they cannot pay so much important
- the manager migth think like a shareholder
cons:
- only rewards Price apretiation ( forget dividends)
- Managers migth not understand Options
-Lose incentive value when share price falls well below exercise price
Lose incentive value when share price falls well below exercise price

Question 6

Other types of compensation

Answer 6

Signing-on bonuses (“golden hellos”)
▪ Gary Wendt’s $45m signing-on fee when he joined Conseco Inc
– Severance provisions (“golden parachutes”)
– Transaction bonuses (e.g., acquisitions, mergers and divestments)
– Corporate loans
– Post-retirement benefits (pensions, use of corporate facilities, etc)

Question 7

LtiP

Answer 7

may pay weiteh by shares or by Multi year performance based bonus
- typlec performance is based on a fixed standar or a comparater Group
– Not subject to many of the institutional constraints that restrict options
– Greater variety of plan types possible