Todd Frank Act Case Summary

CEO compensation has been a heated debate for many years recently, and it can be argued

The CEO’s compensation should be set on how well the firm performs and should be awarded based on the performance of the stocks in the long run. It is easier to measure performance by the growth rate in the profits that have been reported since intrinsic value cannot be fully

7. Option compensation will continue to be a critical component of compensation for executives as it simplistically aligns the executives’ pay to shareholder value in its simplest sense. I don’t believe that options compensation is the primary driver of behavior when things shift from the legal to the illegal. As with most senior executives in industry, ego is a huge driver in individual behavior. Compensation is important, but the recognition of your performance is sometimes even more important. We have created a performance driven culture without the necessary control framework for people to operate within. One minute you are doing a great job, the next you have crossed an imaginary line. The frameworks don’t do enough to quantify behavior as legal and illegal leaving inconsistent rules for organizations to operate within. How does Enron compare to the subprime mortgage debacle, or to Steve Jobs backdating options. There remains too much room for interpretation.

A Cost-reimbursable contract would have been a better option for SEC. This contract would have required detailed budgets that indicate the intended use of the funds as this detail helps define appropriate and allowable expenditures. A Cost-reimbursable contract would have better motoring, accountability and incentive to meet deadlines.

According to Martocchio (2016), there are two groups of employees recognized by the Internal Revenue Service (IRS), namely, executive employees and non-executive employees. The unique element that distinguishes the executive compensation from non-executive packages is the emphasis on long-term rewards over short-term rewards. Although the Dodd-Frank Act focuses chiefly on overhauling the U.S. financial regulatory system, it contains several provisions that apply to setting executive compensation. The Say-On-Pay provision requires organizations to avail a resolution to shareholders that requires them to endorse, in a non-binding advisory vote, the remuneration of the entity’s named executive officers (Bainbridge, 2010). Then, to the extent that any “golden parachute”-related compensation is not approved as part of the Say-On-Pay vote, the Act

You may think the justice system does a good job with convicting the guilty, but after reading timothy Cole story you may retract your pervious thought. Timothy Cole was a 26 year old college student at the notable Texas tech. Cole was also a veteran who spent 2 years in the army .on march 24,1985 Michele Mallin who was also a student at Texas tech, had parked her car when an individual had approached her car inquiring about jumper cables. The individual that approached her forced her into her car and had driven her to the outskirts of town and proceeded to rape her and fled via foot. Ms.Mallin proceeded the next day to the local police to do a police report they took her report, they also proceeded to do a rape kit on her. Which typically

When approving compensation for directors, officers and employees, contractors, and any other compensation contract or arrangement, in addition to complying with the conflict of interest requirements and policies contained in the preceding and following sections of this article as well as the preceding paragraphs of this section of this article, the board or a duly constituted compensation committee of the board shall also comply with the following additional requirements and procedures:

“The Act reviews the powers and structure of the Securities and Exchange Commission (SEC), credit rating organizations, and the relationships between customers and broker-dealers or investment advisers” (David S. Huntington, Paul, Weiss, Rifkind, Wharton & Garrison LLP, 2010). It provides corporate governance and executive compensation reforms, such as proxy access, chairman and CEO disclosures, broker discretionary voting (Corporate Governance); say-on-pay, say-on-golden parachutes, broker discretionary, compensation committees, executive compensation claw backs (Executive compensation). In order to be active and operational, these provisions require further action by the SEC, the stock exchanges or other regulators except the say-on-pay, say-on-golden parachute and broker discretionary voting requirements. Most of

However, there have been many cases where the CEO and executive officers receive outrageous compensation even when the companies suffer. Overall, there is a wide disconnect between the incentive of the executives and the financial performance of their company, which needs to be fixed. By passing regulations and rules such as the Dodd-Frank Act, there is hope of shedding light on the connection between the company’s performance and the executives pay. Although it will provide a clear insight, it will not be able to set a strict regulated compensation or define what an executive should earn. Instead regulations will allow for more transparency for the shareholders regarding corporate governance issues such as executive pay. Along with that, it will force companies to take accountability for their actions. If they do poorly, then the executives should be paid less, and vice versa. Overall, there should be a direct alignment between executive pay and the company’s

Directors have awarded compensation packages that go well beyond what is required to attract and hold on to executives and have rewarded even poorly performing executives. These executive pay excesses come at the expense of shareholders as well as the company and its employees. Furthermore, a poorly designed executive compensation package can reward decisions that are not in the long-term interests of a company. Excessive CEO pay is essentially a corporate governance problem. When CEOs have too much power in the boardroom, they are able to extract what economists' call "economic rents" from shareholders (Economic rent is distinct from economic profit, which is the difference between a firm's revenues and the opportunity cost of its inputs). The board of directors is supposed to protect shareholder interests and minimize these costs. At approximately two-thirds of US companies, the CEO sits as the board's chair. When one single person serves as both chair and CEO, it is impossible to objectively monitor and evaluate his or her own performance.

Read the discussion case "Executive Compensation" on pages 190-192 then answer/discuss questions 1-7 that follow.

The second compensation package was not well designed nor did it help define what the corporate strategy would be. For a second time the compensation package focused on maximizing shareholder’s wealth and didn’t take into consideration the stakeholder’s position at all. Dunlap’s package was deeply weighted in company options ($3.75M). In fact it was weighted heavier than before. The stock grants were

It was reasonable for a CEO’s compensation to increase as the company expanded and became a larger entity, and the newly-granted shares and increasing stock options further aligned the CEO’s personal interests with those of the company and shareholders. In this sense, the second compensation package was also well-structured and not excessive. Seeing Sunbeam’s revenue rising and stock price climbing steeply upwards, Sunbeam’s shareholders and directors were fully convinced by Dunlap’s leadership, so they might perceive the increase in compensation amount necessary to retain and better motivate Dunlap to enhance the company’s value. Nonetheless, they neglected the fact that the increased portion of the equity-based compensation also further motivated the CEO’s dangerous behaviors pertaining to improper earnings management.

A major role of this committee is the reviewing of the Company’s compensation strategy. Ensuring that the compensation strategy aligns with their goal to attract and retain high-quality leadership is crucial to the success of The Home Depot. They must make certain that management is awarded the appropriate incentives and rewarded appropriately for its contributions to the growth and profitability of the Company. The Home Depot’s compensation strategy must also align with all of the Company’s objectives and stockholder interests. ("Leadership development &," 2013)

Executives and those responsible for misdeeds should have been subject to significant clawbacks of compensation. If the reason they misbehaved and took inappropriate risks was to raise compensation, losing that compensation would be an appropriate punishment.