Executive Compensation

1
Executive Compensation

• Amy Sachs
• Kellie MacMullan
• Meagan Mucciarone
• Paul Haines

2
Highest Paid CEOs
3
Definition

• Governance mechanism that seeks to align the
  interests of managers and owners through
  salaries, bonuses, and long term incentive
  compensation, such as stock options.

Strategic Management Competitiveness and
Globalization
4
Executive Compensation

• Looking at
• Pay
• Bonuses
• Performance
• Company makeup
• Stage Stores Company and CEO

5
Interview with CEO

• Jim Scarborough, President, CEO, and Chairman of
  the BoardStage Stores, Inc

6
Stage Stores

• Stage Stores, Inc
• Retail Industry
• 3 Department Stores Bealls, Palais Royal, Stage
• Think Big in Small Town America
• Headquarters in Houston, TX
• 362 Stores, mainly South Central
• Over 1 Billion/year

7
Jim Scarborough

• CEO, President and Chairmen of Stage Stores for
  over 3 years
• 53 years old
• Previously CEO at
• BusyBody-Fitness equipment
• Seattle Lighting-Lighting Fixture

8
Executive Compensation Basics

• Executives-Who are they?
• Key Employees in company
• CEO, CFO, COO
• President, VPs, Directors

9
What is Executive Compensation?

• Core Compensation Base Pay Bonus
• Less than 1,000,000 due to tax implications
• Short term Incentives
• Stock Options
• Fringe Compensation

10
Issues With Compensation Packages

• If CEO holds over 1 of stock, hard to fire
• Bonuses often cause oversight of long term goals

11
Jim Scarboroughs Compensation Package

• Pay, bonuses
• Long-term
• Company matches, defers income
• Stock options
• Car Allowance
• Extra Discount
• Life Insurance
• 100 paid medical plans
• No deductible or premium

12
Who Sets Executive Comp?

• Different for Each Company
• Compensation Consultants
• Compensation Committees
• Board of Directors
• Shareholders

13
Board of Directors

• Is it fair for Board of Directors to determine
  salary?
• Boards are often quite friendly with the CEOs
  and find it hard to impose large decreases in
  compensation on their friends
• Boards should usually be made of outsiders to
  avoid much conflict

Executive Compensation and Shareholder Value
14
How Stage Does It

• Compensation Committee
• Info from Hay Associates Hewitt Associates
• Pay grades
• Philosophy to pay at 75th percentile
• Brought to Board for Ratification

15
Lets Look at Salaries

• Are CEOs paid based on performance?
• Are CEOs paid based on industry?
• Are CEOs paid based on company size?

16
Comparing Industry Salaries

• Retail Industry
• GAP
• NORDSTROM
• STAGE STORES
• Financial Service Industry
• MERRILL LYNCH
• JP MORGAN CHASE
• JANUS MUTUAL FUNDS

17
GAP INCTWO FOLSOM STREETSAN FRANCISCO, CA(415)
952-4400 Executive Comp Summary
18
NORDSTROM INC1617 SIXTH AVENUESUITE
500SEATTLE, WA(206) 628-2111 Executive Comp
Summary
19
STAGE STORES INC10201 MAIN ST5847 SAN FELIPE ST
STE 2600HOUSTON, TX(713) 667-5601 Executive
Comp Summary
20
MERRILL LYNCH CO INC4 WORLD FINANCIAL CTRNEW
YORK, NY(212) 449-1000 Executive Comp Summary
21
J P MORGAN CHASE CO270 PARK AVE39TH FLNEW
YORK, NY(212) 270-6000 Executive Comp Summary
22
JANUS CAPITAL GROUP INC100 FILLMORE
STREETDENVER, CO(303) 333-3863 Executive Comp
Summary
23
As You Can See

• Within each industry
• Size of company does not reflect salaries of
  CEOs
• Difference between industries
• Industries reflect a large pay difference to
  CEOs

24
What Do You ThinkShould company size or
industry type determine pay?
25
Does SalaryHigh Performance?
26
CEO Compensation

• Citigroup Share price down 25, Stock bonus went
  from 17 million to 17.9 million
• Bear Stearns profits rose, pay doubled to 19.6
  million
• ETrade Group resigned after taking 80 million
  pay package
• After pressure from investors Delta CEO gave up
  9.1 in bonuses

27
Reasoning

• Board of Directors feel execs deserve high
  salary
• Doing good job in hard times
• Doing more work to manage in a bad economy

28
How Should Executives Be Paid?

• Strictly performance based?
• Because of responsibility ok to pay even when not
  performing well?

What do you think?
29
Conclusion

• Executive Compensation is different
• Much more than just salary
• Always a debatable topic
• Ever-growing issue with the current economy

30
Questions?