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VIII. Discussion Questions and Suggested Answers
11.1. What can be done to make the function of compensation committees
consistent with shareholders’ interest? Explain your answer.
A compensation committee is made up of members within and outside the company, also
known as the Board of Directors. The Board of Directors represent shareholders’ interests
by weighing the pros and cons of top executive decisions. The Boards of Directors have
members including CEOs and top executives of other successful companies,
11.2. Which component of compensation is most essential to motivate executives to
lead companies toward competitive advantage? Discuss your rationale.
Answer to this question can be found in the MyLab
11.3. Discuss your position on executive compensation. Is executive compensation
excessive or appropriate?
Answer to this question can be found in the MyLab
11.4. Discuss the differences between enhanced benefits and perquisites.
The main difference between enhanced benefits and perquisites is that in order to be
eligible for perquisites one must be an executive. Enhanced benefits are a different
11.5. Consult a recent news article about a company’s executive pay. Summarize
the main issues detailed within the article
Responses will depend on current news stories.
IX. End of Chapter Case; Instructor Notes, and Questions and Suggested
Student Responses
Case Name: CEO Pay at in the News
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Instructor Notes
The AFL-CIO posts executive pay information on their website under “Executive
PayWatch.” This information is shared with U.S. workers in order to help boost union
membership across the country. When workers are aware of the disparity between
11.6. What additional information about the CEO’s pay package should Don
identify to potentially share with the employees?
Executive pay is comprised of several different components and Don should outline those
specifically. Depending on the theory used to set the CEO’s pay, Don may want to collect
different information. For example, under agency theory, he may want to emphasize the
CEO’s ownership in the company. Under social comparison, he may want to obtain
11.7. How can Don explain the pay disparity to the employees to ease their
concerns about the fairness of the CEO’s pay?
Students may have a variety of responses to this question. Essentially, they should
identify the type of information that they would want to know if they were employees of
Oakwood. For example, Don should emphasize the tie between the CEO’s pay and
X. Crunch the Numbers! Questions and Suggested Student Responses
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11.8. By what percent does annual median pay differ between the oil and gas
extraction industry and the retail trade industry for (a) chief executives, (b)
human resources managers, (c) accountants and auditors, and (d) file clerks?
a. (187,199-180,360)/187,199 = 3.65%
11.9. In the oil and gas extraction industry relative to the retail trade industry,
what are the pay ratios between (a) chief executives, (b) human resources
managers, (c) accountants and auditors, and (d) file clerks, respectively?
Ratio of Oil and Gas Extraction Industry to Retail Trade Industry
a. 187,199/180,360
1.04:1
Learning Objective: 11-6. Briefly explain the executive compensation controversy as it
relates to whether U.S. executives are paid too much.
AACSB: Application of knowledge
11.10. In the oil and gas extraction industry, what are the pay ratios for the chief
executives job to (a) human resources managers, (b) accountants and
auditors, and (c) file clerks? In the retail trade industry, what is the ratio of
pay for chief executives to (d) human resources managers, (e) accountants
and auditors, and (f) file clerks, respectively?
Oil and Gas Extraction Industry
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Chief executives to Accountants and Auditors:
Chief executives to File Clerks:
Retail Industry
Chief executives to HR managers:
Chief executives to Accountants and Auditors:
Chief executives to File Clerks:
Learning Objective: 11-6. Briefly explain the executive compensation controversy as it
relates to whether U.S. executives are paid too much.
AACSB: Application of knowledge
XI. Assisted-graded Questions
11.11. Summarize three forms of deferred (stock) compensation.
Answer to this question can be found in the MyLab
11.12. What are the objectives of the say-on-pay rule? Do you think that
shareholders should be limited to taking an advisory vote or should
shareholders be able to determine an executive’s compensation?
Answer to this question can be found in the MyLab
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11.13. MyManagementLab Only—comprehensive writing assignment for this
chapter.
XII. Additional Cases from the MyManagementLab Website; Instructor Notes,
and Questions and Suggested Student Responses
Case Name: Communicating Benefits at JSJ Publishing
Instructor Notes
Many employers mistakenly assume that employees know what benefits the company is
required to provide by law, and which benefits they voluntarily provide. Understanding
Suggested Student Responses:
11.14. Why is it important to provide effective communication about employee
benefits?
Companies invest significantly in employee benefits and it is important for employees to
AACSB: Analytical thinking
11.15. What is your opinion of JSJ’s current communication about their benefit
program?
While JSJ provides thorough information to their employees, they have not made the
information easily accessible. They may be providing employees with too much detail
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AACSB: Analytical thinking
11.16. How can JSJ improve their benefits communication?
Students may provide a variety of responses or creative ideas on how to improve benefits
communications. A personal statement of benefits would be a useful tool to help
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