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Mini Case: Your organization is undergoing a change

Mini Case: Your organization is undergoing a change in top leadership. You are on the committee that is responsible for determining the compensation (salary plus incentives) for the new CEO. What should his/her bonus be tied to? How will you keep him/her from trying to maximize short-term performance at the expense of both long-term viability and stakeholder wellbeing? How would you alter your response if the firm was a not-for-profit organization versus a profit seeking corporation?

Is it good business for firms to donate money to charity? Some say that this is the stockholders' money and they should get it and they donate to the charity of their choosing. Explain how you feel about this subject.

As a financial manager you may not be involved in the actual structuring of a loan. However, it may be your call as to when your company seeks funding and the type of funding sought. What factors must you consider when making this decision?

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Mini Case: Your organization is undergoing a change in top leadership. You are on the committee that is responsible for determining the compensation (salary plus incentives) for the new CEO. What should his/her bonus be tied to? How will you keep him/her from trying to maximize short-term performance at the expense of both long-term viability and stakeholder wellbeing? How would you alter your response if the firm was a not-for-profit organization versus a profit seeking corporation?

What should his/her bonus be tied to?
CEO's are paid very well for their time and effort. Not only do they earn million dollar salaries and bonuses; they also receive stock-based pay. This means that the executive is also an owner of the corporation he or she works for. Stock-based pay is usually in the form of stock options or stock grants. The CEO's bonuses should be tied to the annual performance of an organization. The bonuses should be in the form of stock options or stock grants as this will ensure the CEO's focus is not the overall success of the organization.
How will you keep him/her from trying to maximize short-term performance at the expense of both long-term viability and stakeholder wellbeing?
In order to keep the CEO focused on the long-term viability and stakeholder wellbeing, the CEO's bonuses should be allocated in the form of stock options. This will ensure that the CEO's focus is on the organization's overall performance and will continue as such in order for the CEO to reap the maximum benefits from his bonus plan. Stock grants are also commonly used in addition to stock options. Under this form of stock-based pay, the ...

Solution Summary

CEO's are paid very well for their time and effort. Not only do they earn million dollar salaries and bonuses; they also receive stock-based pay. This means that the executive is also an owner of the corporation he or she works for. The solution discusses what his/her bonus should be tied to along with other relevant questions.

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