November 30, 1999Executive Compensation Connection and Correlation of Executive Compensation to Stockholder Metrics A Study of Four Major US Corporations.

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Presentation transcript:

November 30, 1999Executive Compensation Connection and Correlation of Executive Compensation to Stockholder Metrics A Study of Four Major US Corporations

November 30, 1999Executive Compensation Agenda Hypothesis Research Methodology IBM GE Colgate/ Palmolive Walt Disney Summary Conclusion

November 30, 1999Executive Compensation Hypothesis Stock options do support investor’s interests.

November 30, 1999Executive Compensation Research Methodology Identify four companies Gather information on CEO compensation and financial returns Determine if there is a positive or negative link between the CEO compensation package and the financial returns Analyze the trend of the four companies

November 30, 1999Executive Compensation Metrics for Review Earnings per Share (EPS) –Net Income/# Outstanding Shares Return on Equity (ROE) –Net Income/Stockholder’s Equity Stock Price

November 30, 1999Executive Compensation IBM CEO - Lou Gerstner Incorporated in 1911 as Computer- Tabulating-Recording Co. Today IBM is one of the leading information technology company Revenue - $81.7 billion Net Income - $6.3 billion

November 30, 1999Executive Compensation IBM Executive Compensation Package Two main components of executive compensation package –Base salary and Cash Incentive/ Bonus –Long-term Incentive Compensation Three main elements drive compensation package –Competitive marketplace –Complexity of leading IBM –Gerstner performance

November 30, 1999Executive Compensation Lou Gerstner Compensation Contract

November 30, 1999Executive Compensation IBM Corporate Performance

November 30, 1999Executive Compensation General Electric CEO - Jack Welsh Only original member of the Dow Industrial Average - Since 1889 GE is a large Conglomerate Revenue - $58,687,000,000 Net Income - $9,296,000,000

November 30, 1999Executive Compensation General Electric – Executive Compensation Two main components of executive compensation package –Base salary and Cash Incentive/ Bonus –Long-term Incentive Compensation Three main elements drive compensation package  Aggressive Leadership  Overall Global Competitive Position  Preeminent quality of products and services  Reinforcement of a culture of integrity and boundaryless behavior  Positioning the company for continued success

November 30, 1999Executive Compensation Jack Welsh’s Compensation

November 30, 1999Executive Compensation General Electric Corporate Performance

November 30, 1999Executive Compensation Colgate/Palmolive CEO Reuben Mark Founded in 1806 by William Colgate Soap, Candles, and Starch Operations in 70 countries and markets its products in over 200. World leader in Personal Care Products

November 30, 1999Executive Compensation Colgate/Palmolive Compensation Package Two main components of executive compensation package –Base salary and Cash Incentive/ Bonus –Long-term Incentive Compensation Main elements compensation package include: –Fosters profitable growth & Increased shareholder value –Align interest of executives & shareholders. –Attract, retain, & motivate high-caliber executives.

November 30, 1999Executive Compensation Reuben Mark Compensation

November 30, 1999Executive Compensation Colgate/Palmolive Increase in Net Income by 15% ($849Million) Total Revenue: 9 Billion. Over 38,000 Employees around the world.

November 30, 1999Executive Compensation Colgate Palmolive Corporate Performance

November 30, 1999Executive Compensation #2 media company. TV, movies, theme parks, publishing, vacations, etc. $23 billion in 1998 revenues. $1.85 billion net income. $.89/share earnings.

November 30, 1999Executive Compensation Executive Compensation at Disney: –Base Salary –Performance base annual bonus Net Income, ROE, ROA, EPS Stock or cash awards –Stock options Initial employment, promotion, renewal or fully vested.

November 30, 1999Executive Compensation

November 30, 1999Executive Compensation Walt Disney

November 30, 1999Executive Compensation

November 30, 1999Executive Compensation 1999 compensation - over $575 million. Stock options issued in Exercised Current stock options - no vested shares now. 24 million unvested. 500% increase in stock price Overall return is excellent.

November 30, 1999Executive Compensation Summary Evaluating executives on financial benchmarks is important. ROE, EPS and stock price accurately reflect executive performance. Stock options encourage benchmark improvement.

November 30, 1999Executive Compensation Conclusion Stock Options work. Pay for performance benefits investors. Long term investors should applaud stock options. Continuation and expansion of stock options should