Question

Case analyses are expected to show critical thinking and be adequately supported with more than one cited reference and in-text citations to support your thoughts. One of these references may be the textbook. Each paper should include a synopsis of the issue at hand and an analysis of what should happen next for the particular situation. Each paper will be written using APA format and be at least 1-2 double-spaced pages (not including cover sheet, references, etc).

Case

A recent campaign by organized labor unions has brought the issue of executive compensation into the public eye. Media coverage of executive compensation concerns has been extensive over the past few weeks with articles in national publications and a featured story on a television special, in addition to stories on local news stations. This extensive coverage has highlighted public concerns of the high level of pay that top executives receive. The union promotes an executive compensation awareness campaign every year as a strategy to build awareness of perceived inequities between the pay of CEOs and frontline employees. Such awareness often prompts employees to consider forming a union, resulting in the growth of national unions. The publicity has caused some turmoil at Oakwood Lawns. For the first time, the company’s CEO pay is featured as an example of perceived excess in the executive suite. Several field managers have been in touch with Don Henry, the director of human resources, to report that employees are outraged at the rate of pay of the company CEO and other top executives. In addition to the company’s desire to remain union-free, Don also knows that such outrage could lead to low morale and other problems at Oakwood. The union targeted Oakwood because it is a big company that has faced some financial challenges. The landscaping company has more than 15,000 employees in offices throughout the Midwest, and most of its employees are frontline laborers. The media coverage has been extensive in the area, and many company employees who viewed the story were surprised to learn the CEO is among the highest paid in the United States. The news was especially difficult to hear as the company recently announced that employees would not receive an annual pay increase due to the financial challenges the company is facing. Oakwood CEO’s annual salary is $975,000. Add in a bonus, stock awards, retirement benefits, and other benefits, and his total compensation is close to $10 million a year. The average landscaping technician is paid $28,000 annually. The disparity is clear, and Don must now plan a response to address the employees’ concerns.

Questions:

11-6. What additional information about the CEO’s pay package should Don identify to potentially share with the employees?

11-7. How can Don explain the pay disparity to the employees to ease their concerns about the fairness of the CEO’s pay?

Answer 1

answer-

6-Executive compensation or executive pay is composed of the financial compensation and other non-financial

awards received by an executive from their firm for their service to the organization. ... Executive pay is an important

part of corporate governance, and is often determined by a company's board of directors.(Ellig, Bruce R.2002). Don

should outline those specifically. Depending on the theory used to set the CEO’s pay, Don may want to collect different

information. In a modern corporation, the CEO and other top executives are often paid salary plus short-term

incentives or bonuses. This combination is referred to as Total Cash Compensation (TCC). Short-term incentives

usually are formula-driven and have some performance criteria attached depending on the role of the executive. For

example, the Sales Director's performance related bonus may be based on incremental revenue growth turnover; a

CEO's could be based on incremental profitability and revenue growth. Bonuses are after-the-fact (not formula driven)

and often discretionary. Executives may also be compensated with a mixture of cash and shares of the company which

are almost always subject to vesting restrictions (a long-term incentive). For example, under agency theory, he may

want to emphasize the CEO’s ownership in the company. Under social comparison, he may want to obtain information

on the market rates of CEO pay in Oakwood’s industry. Further, Don should identify the components of the CEO’s

salary that are specifically tied to performance. While the company is having financial difficulty, Don should identify

performance data that indicates any success that CEO has had in leading the company. The case may be that while

the company is struggling financially, without the leadership of the CEO, they could be doing much worse.

7- As a compensation professional, it should be expected that Don will continue to “face many difficult questions from

employees regarding the rationale for and the fairness of a lucrative executive compensation package” (Martocchio,

2014, p. 285). In this situation, Don should explain the pay disparity to the employees but emphasizing a tie between

the CEO’s pay and performance. He should outline the CEO’s skills, knowledge and expertise to help explain why it is

necessary to the pay the CEO his current salary so the organization is able to retain him. The CEO’s contributions and

professional milestones in helping the organization should be outlined to the employees so they can see how the

CEO has helped the company move forward, particularly in a time where the company is struggling.