CEO Pay and Options Discussion Questions

1.      During the “Tech Bubble” when high-tech stock prices rose dramatically (before the bubble burst in March 2001), employees may have over-valued stock options because of “irrational exuberance.” In such a situation, should a company issue employee stock options? What are the benefits of doing so? The costs?

2.      Should companies whose employees invest in more firm-specific human capital make more, or less, use of stock, options and profit sharing in employee incentive plans?

3.      You are on the board of a company that needs to downsize dramatically. Doing so will cause great public criticism. What factors should you consider in hiring a new CEO, and designing his or her incentive plan?

4.      You are a new CEO. What kind of people will you ask to be on your board? Why?

5.      Some companies give their CEOs “golden parachutes” – large bonuses if the company is sold to an acquirer and the CEO loses his or her job. Does this practice sound like a sensible incentive scheme to you? Why or why not? What are the issues?

6.      Are CEOs paid “too much”? In what sense? If incentives are important for motivating CEOs to increase shareholder value, is there any alternative?