Mgmt 428 Case Analysis

Jennifer Flores

MGMT 428

Case 8: CEO pay in the news

1. What additional information about the CEO’s pay package should Don identify to potentially share with the employees?

There are several different components that are part of the Executive pay, this would include the CEO’s base pay, bonuses, stock compensation, and benefits that they may receive. With that being said Don should specifically outline and talk about to the frontline employees. An example of this would be the Agency Theory. With the Agency Theory, “shareholders delegate control to top executives to represent their ownership interests, as stated many top executives do not own majority shares of their own companies’ stock.” Then there is Social Comparison theory, “individuals need to evaluate their accomplishments, and they do so by comparing themselves to similar individuals”. With this theory he would maybe want to obtain information on the market rates of the CEO’s in Oakwood. Don could also possibly identify the performance data. This would help employees see years past success that the CEO has had in leading the company.

1. How can Don explain the pay disparity to the employees to ease their concerns about the fairness of the CEO’s pay?

With the CEO making an annual salary of almost $10 million it would make it almost impossible to explain the entire pay package. With that said in the case itself there isn’t much information of how the salary comes up to $10 million. In the case of Don, he could try to explain to the employees of the value that the CEO has with the responsibility and decision making, that comes with the title. He can go in detail about what bonus he received, reassure that his bonus as well will be less than the year before. With the company struggling, on can mention that they must compensate adequately in able to keep him there and have him keep working. Assuming that the company has had great years before this struggling year.