Case Studies for Management (taken at various books and websites)

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Case #26

In 2000, the new CEO of The Home Depot entered into an employment contract that eventually awarded him more than $200 million during a five-year period. A portion of this amount was given to the CEO in the form of a guaranteed annual bonus of at least $3 million a year. The provision of a guaranteed minimum annual bonus is considered rare by industry standards — a study by the Delves Group indicates that The Home Depot CEO was the only CEO of the 200 largest U.S. revenue companies to have such an agreement. While examples of guaranteed payment exist, the length and size of the payments is considered uncommon. In 2005, the CEO received his guaranteed bonus while the amount of money allotted to the non-salaried
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4. Will the general employee population perceive this program as fair?
5. How and when will you disclose this plan to shareholders?

Case #29
In 2003, Walt Disney Co. shareholders filed a lawsuit relating to the $140 million severance package paid to the former the president. Shareholders contended that the directors knowingly or intentionally “breached their fiduciary duty of due care in approving (the president’s) employment agreement,” and failed to consider the terms of the termination — which was allegedly negotiated exclusively by the CEO. Although the court agreed with shareholders that the CEO had exclusively negotiated the deal and orchestrated the president’s hire without input from the board of directors, it found that neither he nor the other directors breached their fiduciary duty. The court did, however, “criticize the members of the compensation committee for not doing more to inform themselves of the terms of Ovitz’s employment agreement and to become involved in the review and approval process.

1. What is the process for developing responses and communicating with shareholders?
2. To what degree does the compensation philosophy align with corporate strategy, culture and organizational resources?
3. What are shareholder expectations about your compensation programs and how do they affect program design?
4. Is senior management prepared to support
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