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View Diary: The McDonald's Pay Gap Is 520 To 1 (14 comments)

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  •  Gary, the rise in equity compensation was a direct (1+ / 0-)
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    nextstep

    result of Clinton's push to have a limit on how much executive compensation could be deducted for tax purposes and the resulting adoption of Sec 162 (m). Before 1993 a much larger portion of CEO compensation was in base salary. After the $1 million limit for tax purposes was initiated it caused compensation committees to look much closer at total compensation and making a larger portion of the compensation variable, and subject to performance standards. In theory all of that was positive. However, if you had a CEO who was making $3 million a year, with $2.5 as salary and a potential for a $500,000 bonus, the thought was that if the base was going to be $1 million then the high end of the potential bonus had to be much higher than $2 million and just take the CEO to a break even, there should be significant upside above the total of $3 million. It the company exceeded its annual targets the CEO should have a $4 million bonus and it shouldn't all be in cash. And that's what happened.

    I think equity compensation has gotten out of hand for senior executives but I like it as a concept, particularly with four year vesting and clawback provisions. It costs the issuing company no cash and creates an ownership stake within the senior management. If senior management has little ownership it can make a company a more likely target to a private equity offer.  

    "let's talk about that"

    by VClib on Wed Dec 12, 2012 at 08:49:36 PM PST

    [ Parent ]

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