Executive Summary
In your textbook, read the case study, Application 5.1 Huge Co. Case: Creating an Executive Summary, starting on page 137.
Develop a one-page executive summary that compares the key features of the benefits plans and make any observations or recommendations you have about merging the plans.
The Case : Merging Benefits at Huge Computer Company, also pages 128-129 to reference the Executive Summary.
The book is :References
Barrett, D. J. (2014). Leadership communicatichoon (4th ed.). McGraw-Hill Education.
Executive Summary: Determining the Relationship be CEO Compensation and Company Performance
In response to a request by Chris Moellar, President of Executive Recruiters (ER), Performance Consultants, Inc. (PCI) was hired to determine what measures Fortune 500 companies use to establish the compensation of their chief executives.
In particular, Ms. Moellar wanted to know if the CEO’s compensation correlates directly to the financial performance of the CEO’s company. Analytical Methods To determine what drives the compensation of top executives, the PCI team selected CEOs from a representative sample of Fortune 500 companies.
For these CEOs, we performed statistical analysis to determine whether CEO compensation is positively correlated to performance. The average compensation of the 100 CEOs in our study was $3.1 million, ranging from a low of $0.5 million to a high of $10 million. In assessing company performance, we used five-year return on investment (ROI) as our primary measure; the companies in our 100-company survey group reported a five-year average ROI ranging from ($.5) billion to $5 billion. Performance Impacts Compensation We found a definite relationship between the five-year ROI of a company and the total compensation that the CEO receives.
Based on our analysis, the CEO compensation increases with every 10 percent increase in a company’s ROI level (Exhibit 1). In addition, besides performance, we found only one other factor that significantly influences CEO compensation: age. The older the CEO, the more salary he or she received. Exhibit 1 CEO Compensation Correlates Directly to Average Five-Year ROI Compensation in Millions Average ROI Billions 5.5
ROI
Compensation
-10 0 10 20 30 40 50 Percent Increase in Five•Year Return on Investment
4.5
3.5
2.5
1.5
Recommendation Based on PCI’s findings, CEO compensation is directly related to company performance, but other factors, such as CEO age, also have an impact on compensation.
Given our results, ER should continue to monitor company performance and use the 10 percent increments as the basis for your recommendations to your clients on compensation levels and on adjustments.
