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CEO Compensation Case Study

1235 Words5 Pages

CEO COMPENSATION STRUCTURE FOR CXS CORPORATION

Prepared for
CSX Stock Watch Group
Jacksonville, FL

Prepared by
Amanda N. Morales
Senior Stock Analyst
CSX Corporation

February 22, 2018

CSX Corporation

CSX Stock Watch Group
CSX Corporation
500 Water St.
Jacksonville, FL Dear Group Members:
The attached report, requested by the CSX Stock Watch Group members in a meeting for proposed pay cuts for many employees, describes the types of compensation structures for CEOs and gives a recommendation for the compensation structure for the CEO at CSX. I believe this analysis will be useful financially.
This research was completed to examine CEO compensation to answer the following three questions:
• How does CEO …show more content…

The purpose of this report was requested to determine how CEOs are compensated. We will look at the CEO of CSX specifically and determine whether or not that compensation is excessive. This study is designed to answer the following three questions:

• How does CEO compensation structure work?
• What is the compensation structure for the current CEO at CSX?
• Should the CEO be moved to a different compensation structure?

BACKGROUND: CEO COMPENSATION STRUCTURES AND HOW THEY WORK

Some CEOs have been criticized for their seemingly excessive pay while their employees earn minimal pay. We will be looking at the components that make up a CEO’s compensation plan, and we will find out why their pay can be so high.

A CEO is the chief executive officer for a particular company. They are ultimately in charge of a company’s success or failure while in the position as CEO. Their goal is to increase the value of the company.

One of three methods generally determines a CEOs compensation; those methods are by a board that works within the same company, by an external analyst, or in direct relation to performance. According to Lansing and Knoedgen (2007), CEO compensation that is tied to a board’s decision can be biased to be higher than average, because the board members are usually current or former CEOs and would like to maintain the opportunity for the CEO to be a future business partner if …show more content…

I say this because the CEO of Home Depot performed poorly in one aspect so the means to measure his success were changed to reflect the accomplishments from a different perspective. Alan Murray in the Wall Street Journal said “Take the case of Home Depot CEO Robert Nardelli, quickly becoming a favorite target of critics of excessive pay. A footnote in his company's 2004 proxy statement says his long-term incentive pay will be calculated by looking at "total return to shareholders over the three-year performance period" and comparing that to "an established peer group of retailers." By that measure, he has bombed. Home Depot's stock has fallen since he took over in December 2000; meanwhile, rival Lowe's shares have soared. BUT IN LAST YEAR'S proxy, the footnote changed. Mr. Nardelli now gets his incentive pay if the company "achieves specified levels of average diluted earnings per share" -- a measure by which Home Depot looks far more successful. Shareholders may not be better off, but Mr. Nardelli is.” This statement shows that pay can be changed even if the structure has been

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