Course Work Example on Compensation and Benefits in a Company

2021-06-02 01:11:43
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University of California, Santa Barbara
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Course work
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We provide a base salary as a fixed source of compensation for our executive officers, allowing them a degree of certainty in the face of having a meaningful portion of their compensation at risk in the form of equity awards with value generally contingent on stock price appreciation. Our Compensation Committee recognizes the importance of base salaries as an element of compensation that helps to attract and retain highly qualified executive talent, particularly in light of the absence of a cash bonus opportunity for our executive officers.

Benefits

Benefits are usually tailored to meet the needs of those hired for the post. For example, someone with a large family might prefer a robust health/dental/life insurance plan over extra vacation time. A younger executive might want a flexible health savings account and extra vacation time. Be open and flexible in structuring this area.

Incentive Cash Compensation

Historically, we have not offered incentive cash compensation opportunities to our executive officers. Our Compensation Committee revisited this practice in setting 2015 and 2016 compensation, but decided not to offer incentive cash compensation opportunities to any executive officer at such times. Our Compensation Committee also elected not to pay any bonus compensation for 2015. Although our Compensation Committee recognized that incentive and bonus cash compensation is a common compensation element at many companies, including companies with whom we compete for talent, it continues to believe that the equity compensation opportunities held by our executives provide sufficient motivation and retention incentives at this time. Our Compensation Committee also feels that it is appropriate, given the broader economic environment, to conserve our cash resources and rely on base salary and equity compensation rather than incentive or bonus cash compensation.

Equity Compensation

Historically, we have primarily used stock options as the principal component of our executive compensation program. Consistent with our compensation objectives, we believe this approach has allowed us to attract and retain key talent in our industry and aligned our executive teams focus and contributions with our long-term interests and those of our stockholders. We grant stock options with an exercise price not less than the fair market value of our Class A common stock on the date of grant, so these stock options will have value to our executive officers only if the fair market value of our common stock increases after the date of grant and our executive officers continue in service through the applicable vesting terms. Typically, stock options granted to our executive officers vest over four years, allowing them to serve as an effective retention tool. As discussed below, the Compensation Committee began granting RSUs to executive officers in 2015, which also vest over four years.

2. What is the range of bonus available to the CEO? (Threshold, target and maximum bonus as percent of salary may be given.)

Threshold - The most common pay-out level for threshold performance is 50% of target although some companies will begin pay-outs at $1 as soon as threshold goals are exceeded

Target - Target bonuses may range from about 10% of salary at the lowest levels up to 150% of salary or more for the CEO

Maximum - Typically set at 200% of target

Companies with more predictable earnings may choose to have less leverage in their pay-out structures, e.g., having a 150% maximum.

3. What are the metrics used to determine bonus? What specific performance measures are used?

Revenue accounted for 20.2% of all the financial metrics implemented within the various annual incentive plans over the two fiscal years, ranging from 20.0% to 50.0% overall. Earnings per share (EPS) and operating income followed as the second and third most commonly used financial metrics, respectively. Although operating income was less common than revenue and EPS, it tended to be weighted more heavily than revenue or EPS, with an average weighting of 52.0%.

4. How much company stock must the CEO own?

We encourage our executive officers to hold a significant equity interest in our stock and, as detailed in Security Ownership of Beneficial Owners and Management, our executive officers collectively owned outright approximately 6% of our stock as of January 15, 2016.

5. What were the components and total compensation of the CEO?

A basic salary

A basic salary this is regarded as a fixed element of pay and it does not normally vary in relation to company performance. Since salary establishes the executives basic standard of living, it is necessary for both high and low-performing firms to pay at the going market rates.

Short-term incentive compensation

These may take the form of stock options, or cash. In most CEO compensation packages, it is usually linked to some short-term objective that can be measured and attained within a time frame of one year.

Long-term incentive compensation

This usually is the most important part of the package. Most CEOs look for a long term compensation package that is generous and provides a powerful incentive to make them put in the long hours that make the company successful.

Executive perks

This is the most sensitive category. This involves the special incentives that make the difference for an executive who is being pursued by multiple companies.

6. What were the key components of All other compensation?

Salary and wages.

Bonuses. Employee bonuses, which are usually paid in a single lump at the end of the year

Health insurance

Retirement plans.

Time off and flexible schedules. This includes holidays, vacations, sick days, and personal days

7. What is the present value of accumulated benefits for the CEO? (There may be multiple components.)

The present value of accumulated benefits for the CEO is 43,951,138. The value consists of ExxonMobil Pension Plan, Supplement Pension Plan, and additional Payments Plan

8. How much severance payment will the CEO get if terminated? If terminated in connection with a change of control? On retirement? Due to death?

Each eligible participant who suffers an involuntary termination without cause or a constructive termination will be eligible to receive, provided that he signs a release of claims and complies with continuing obligations of confidentiality, (i) a lump sum cash payment equal to one year of his then-current base salary, (ii) a lump sum bonus payment equal to the actual cash bonus amount the participant would have earned for the year in which the termination occurred, if any, based on our actual performance, prorated for the period of active service, and (iii) six months of company-paid health insurance coverage. In the event a participant suffers an involuntary termination without cause or a constructive termination in the same year as a change in control (as defined in the Severance Plan), the lump sum bonus payment will be equal to the actual cash bonus amount as if we had achieved all of the goals under the bonus plan in the year in which the termination occurred and will not be pro-rated. Additionally, each participant who experiences an involuntary termination without cause or a constructive termination on or within 12 months following a change in control will receive accelerated vesting of 50% of the number of their unvested shares subject to each equity award held by such participant that was awarded after the adoption of the Severance Plan.

9. Do you think the CEO of your organization makes too much? Why? /Why not?

No, CEOs do not make too much. CEOs deserve every penny they get. Companies demand good leadership. One that is able to rub the company and make the best and lucrative decisions that keep the company going. CEOs have a massive responsibilities that are way critical than the other jobs in the company and the decisions they make have a direct implication on the success or failure of the organisation.

10. Should the government set limits on how much a CEO should make, or leave it to Boards of Directors and shareholders?

The government should not be in the position of capping or limiting the salaries of corporate executives. This is because it would be inconsistent with a free enterprise market system

 

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