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1. TS Taking Sides Are US CEO’s paid more than they deserve? 2.2. Article on CEO pay 3.3. Article on celebrity pay 4.4. Articles on Nonprofit and Health Care CEO pay (Health Care related majors only must read this article) 5.NOTE: I have replaced the Taking Sides chapter that was previously posted with a new Taking Sides chapter on the same topic because in the original chapter one side confounded the issue by making their argument about hedge fund managers rather than CEO’s which may mislead readers. The updated Taking Sides chapter more accurately reflects both sides of the issue. Please read this one instead. 6.FYI, I just read in the Wall Street Journal (May 2017) that the average US CEO makes $11.6 Million. Does this change any of your thoughts given that the general perception is that they make a lot more? 7.Before reading the assignments please read the below about how executive compensation is constructed. It does not answer the question for you but helps you understand the arguments that both sided make… 8.Understanding Executive Compensation in US Public Companies. 9.It is important to understand the components of executive compensation. Keep in mind that there are only 500 CEO’s of the Fortune 500 companies so we are not talking about a lot of people, just the truly talented who have risen to this level. 10. Most CEO’s don’t receive a base pay over a million dollars because that is the limit to tax deductibility of base pay. Most receive a performance based bonus that can vary from zero to ten million based upon reaching predefined objectives. Reach them and get the bonus, miss and you lose out. Finally the other piece of compensation is equity (equity means stock) in the form of restricted stock grants and stock options. Back in the 1980’s there was a big social revolution to align CEO pay with shareholder interests. This shifted compensation from base and bonus to stock. The CEO’s compensation goes up as stock value goes up. Restricted stock is often called Performance Stock Shares (PSS’s) or Performance Stock Units (PSU’s) depending on technical factors of how it is put together. Stock options only go up in value with the stock’s market price if the CEO is successful in running the company and restricted stock is typically only obtainable if certain restrictions are met such as company performance, retention, etc. 11. As an example, a stock option is the “option” to buy the stock at today’s market price. If the value of the stock goes up, all owners of the company including the CEO make money. If the stock price goes down there is no value to the option. Most executive options can’t be exercised (used) for 3 years but must be exercised no later than 10 years after issue. Tax law counts the option as income in the year they are exercise (used). So if you received options ten years ago and exercise them today they go into this year’s income. If you saved your options for many years and exercise them all in one year that makes for potentially high dollar amounts. Say the company stock was at $15 a share ten years ago but is at $500 now. The gains are stupendous and all must be reported as this year’s income. When you see huge executive compensation look to see if the CEO made that much the year before. Probably not. Most likely it was the cashing in of years’ worth of stock options and restricted stock all in one year. That means the company has done well over a period of time and all shareholders have benefited including the CEO. 12. The news tends to report a particular CEO made $150 million last year leading you to believe that was her “base pay” and that is what she regularly makes but doesn’t tell you it was due to a one time cashing in of stock and options and that she didn’t make that much in the prior year and won’t make that in the following year. That explanation just wouldn’t make sensational news. 13. In addition to the big components of compensation, the CEO’s compensation includes things that you wouldn’t think of. Due to the complexity of executive compensation most companies hire an accounting firm to help the CEO sort out the tax implications. The value of the accounting firm is added as reported compensation and the CEO is taxed on it. Same thing for the country club membership. If the CEO is flying on the company plane and there are empty seats he may want to take his wife with him. If he does he has to add the value of her airfare to his income and pay tax on it. The value is not for a regular airplane ticket or even a first class ticket but rather for a private charter plane. Add another ten or fifteen thousand dollars to his compensation even though the seat would have otherwise gone empty. There are many more things like this that count toward reported compensation. None of this goes to the issue of “should” CEO’s make money but it is important to understand where the numbers come from