Ceo Compensation

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The Debate over CEO Compensation

Analyzing Managerial Decisions: The Debate over CEO Compensation 1. Do you think the fact that most American CEOs are paid so much more than rank-and-file employees suggests CEOs are overpaid? Explain.

I do not believe that just because American CEOs are paid much more than rank-and-file employees suggest that they are overpaid. Many CEOs whose salaries and compensation packages are discussed in the news are the CEOs from the largest American corporations and likely do not represent the average American CEO. Also, many times when CEO payouts are discussed in the news it is not a one year payout but instead a multi-year payout. Plus, many companies need to pay high salaries and incentives
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In particular, why do you think Kauffman’s pay commissions to salespeople, while Parkleigh does not? Why does Parkleigh offer employee discounts on purchases, while Kaufmann’s does not?

There are a few reasons that the compensation plans may differ between the two stores. The first reason may be because Parkleigh may not operate under the philosophy that sales incentives drive sales but instead high customer service and friendly staff drives sales especially when selling to higher end customers. They may also want the sales staff keeping the dressing rooms clean and clothing folded on the tables which could also increase the stores sales. Parkleigh may offer the employee discount because they may have the philosophy that if the employee owns the products they could more easily sell them to others customers. Since the products are more upscale this may be the only way the employees could afford to purchase them. Since Kaufmann’s is more of a middle class store the incentive plan may need to be structured differently. The employees may already own the products that they are selling so a discount may not be as needed as a sales commission. Since there are typically more middle-income stores Kauffman’s may have the sales incentive to try and push the products and not worry so much about the store environment or customer satisfaction.

2. Assume, for the moment that neither store pays sales commission. Parkleigh offers an
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