978-0134320540 Chapter 11 Solution Manual

Unlock access to all the studying documents.

View Full Document

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

152

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

153

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

154

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

155

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

156

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

157