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Should Corporations Cut CEO Bonuses in a Bad Economy?

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European regulators have actively and vigorously cutting company bonuses in light of the current global economic recession. Although some government-related entities in the USA are being subjected to bonus caps, many are moving ahead with discretionary bonuses.

Your thoughts? Are these defensible in light of an economic recession? Or, are they important to attract and retain talent that will help companies quickly recover from the economic morass?

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The economic recession that continues to plague corporate America and the global economy has placed an increased interest on the topic of equality of CEO pay as compared to the overall performance of their company. In too many cases of late, the CEO is being fully compensated with massive bonuses and incentives tagged while their company is heading the other direction, losing millions, laying off workers, or being forced out of business. This would seem to most reasonable people to be unfair.

That being said, the CEO is the most important role a company has and there is a pattern of extremely high pay and bonuses that come with that responsibility. This isn't in and of ...

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The CEO is the most important role in a company, and there is a pattern of extremely high pay and bonuses that come with that responsibility. This isn't in and of itself the problem. Many people tend to hear the dollar amounts a CEO makes and scream for justice out of jealousy, not truly understanding all the dynamics of the CEO's pay and that leads to public outcry over perceived injustices, sometimes accurate, but in many cases the claims are purley false (Cheng, & Indjejikian, 2009).

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Human Resource Management: Compensation issues

1. The Employee Benefit Research Institute (www.ebri.org) has conducted a "Retirement Survey" for several years. Visit EBRI's website and find the 2010 Retirement Confidence Survey. Scan the "Findings" and take a look at the "Fact Sheets" and comment on how HR might help solve the problem of inadequate employee participation in company supported retirement plans (e.g., 401K-like programs). Also, make observations on why most companies are shifting from defined benefit to contributory plans and any other aspects of retirement planning from the HR perspective.

2. One of basic premises of economics is that people respond to incentives. Give examples of individual incentives used by an organization in which you were either employed or know about. Describe why those plans were successful or unsuccessful. How could you have structured the unsuccessful ones to work better?

3. The attached series of articles from SHRM regarding pension funding issues helps us understand why employers are shifting away from defined benefit plans to contribution plans (e.g., 401K). To pay a $30,000 per year pension takes about $500,000 in the bank. If you are General Motors with thousands of pensioners, you have to tie up a lot of cash to cover the pension obligations. That much cash is a tempting source for urgently needed funds, and leads to borrowing and those sincere promises to pay it back. Do you have any observations?

4. SHRM reports, "In what could prove to be a bellwether for corporate compensation generally, financial organizations have changed their pay mix, moving away from short-term incentives in favor of increased salary, deferred compensation and modified incentive program design. According to a global survey by HR consultancy Mercer, key changes in the sector's short-term incentive (STI) programs include more focus on balanced, risk-adjusted performance measurement and deferral of bonus payouts over several years." The full SHRM article is attached and the Mercer Survey summary is http://www.mercer.com/press-releases/1368340. Do you have any observations regarding SHRM's claim that the Mercer survey represents a "bellwether for corporate compensation"?

5. It seems that competition has tended to drive up the "worth" of a good CEO to unsustainable levels. Basic economics says that someone should be paid what they are worth. Read the attached WSJ article about how one company tried to pull back. Did Sharper Image make some good decisions? Has their profitability shown results?

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