Chapter Learning Objectives

  • Recognize the primary factors that govern executive pay in general and CEO pay in particular.
  • Understand what stock options are and how they work.
  • Appreciate that the huge CEO compensation levels that attract the attention of the media reflect the exercise of accumulated stock options.
  • Understand the major theoretical approaches that have shed light on the determinants of executive pay.
  • Understand that a golden handshake is a reward for failure but only so after the fact. Ex ante, it provides a valuable instrument for increasing shareholder value.
  • Possibly be perplexed by the brouhaha over the honoring of bonus payments to financial executives during the financial crisis that occurred in fall 2008.