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Connection and Correlation of Executive Compensation to Stockholder Metrics

Connection and Correlation of Executive Compensation to Stockholder Metrics. A Study of Four Major US Corporations. Agenda. Hypothesis Research Methodology IBM GE Colgate/ Palmolive Walt Disney Summary Conclusion. Hypothesis. Stock options do support investor’s interests.

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Connection and Correlation of Executive Compensation to Stockholder Metrics

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  1. Connection and Correlation of Executive Compensation to Stockholder Metrics A Study of Four Major US Corporations Executive Compensation

  2. Agenda • Hypothesis • Research Methodology • IBM • GE • Colgate/ Palmolive • Walt Disney • Summary • Conclusion Executive Compensation

  3. Hypothesis • Stock options do support investor’s interests. Executive Compensation

  4. Research Methodology • Identify four companies • Gather information on CEO compensation and financial returns • Determine if there is a positive or negative link between the CEO compensation package and the financial returns • Analyze the trend of the four companies Executive Compensation

  5. Metrics for Review • Earnings per Share (EPS) • Net Income/# Outstanding Shares • Return on Equity (ROE) • Net Income/Stockholder’s Equity • Stock Price Executive Compensation

  6. IBM • CEO - Lou Gerstner • Incorporated in 1911 as Computer-Tabulating-Recording Co. • Today IBM is one of the leading information technology company • Revenue - $81.7 billion • Net Income - $6.3 billion Executive Compensation

  7. IBM Executive Compensation Package • Two main components of executive compensation package • Base salary and Cash Incentive/ Bonus • Long-term Incentive Compensation • Three main elements drive compensation package • Competitive marketplace • Complexity of leading IBM • Gerstner performance Executive Compensation

  8. Lou Gerstner Compensation Contract Executive Compensation

  9. IBM Corporate Performance Executive Compensation

  10. General Electric • CEO - Jack Welsh • Only original member of the Dow Industrial Average - Since 1889 • GE is a large Conglomerate • Revenue - $58,687,000,000 • Net Income - $9,296,000,000 Executive Compensation

  11. General Electric – Executive Compensation • Two main components of executive compensation package • Base salary and Cash Incentive/ Bonus • Long-term Incentive Compensation • Three main elements drive compensation package • Aggressive Leadership • Overall Global Competitive Position • Preeminent quality of products and services • Reinforcement of a culture of integrity and boundaryless behavior • Positioning the company for continued success Executive Compensation

  12. Jack Welsh’s Compensation Executive Compensation

  13. General Electric Corporate Performance Executive Compensation

  14. Colgate/Palmolive • CEO Reuben Mark • Founded in 1806 by William Colgate • Soap, Candles, and Starch • Operations in 70 countries and markets its products in over 200. • World leader in Personal Care Products Executive Compensation

  15. Colgate/PalmoliveCompensation Package • Two main components of executive compensation package • Base salary and Cash Incentive/ Bonus • Long-term Incentive Compensation • Main elements compensation package include: • Fosters profitable growth & Increased shareholder value • Align interest of executives & shareholders. • Attract, retain, & motivate high-caliber executives. Executive Compensation

  16. Reuben Mark Compensation Executive Compensation

  17. Colgate/Palmolive • Increase in Net Income by 15% ($849Million) • Total Revenue: 9 Billion. • Over 38,000 Employees around the world. Executive Compensation

  18. Colgate Palmolive Corporate Performance Executive Compensation

  19. #2 media company. • TV, movies, theme parks, publishing, vacations, etc. • $23 billion in 1998 revenues. • $1.85 billion net income. • $.89/share earnings. Executive Compensation

  20. Executive Compensation at Disney: • Base Salary • Performance base annual bonus • Net Income, ROE, ROA, EPS • Stock or cash awards • Stock options • Initial employment, promotion, renewal or fully vested. Executive Compensation

  21. Executive Compensation

  22. Walt Disney Executive Compensation

  23. Executive Compensation

  24. 1999 compensation - over $575 million. • Stock options issued in 1989. Exercised 1999. • Current stock options - no vested shares now. 24 million unvested. • 500% increase in stock price - 1984-1989. • Overall return is excellent. Executive Compensation

  25. Summary • Evaluating executives on financial benchmarks is important. • ROE, EPS and stock price accurately reflect executive performance. • Stock options encourage benchmark improvement. Executive Compensation

  26. Conclusion • Stock Options work. • Pay for performance benefits investors. • Long term investors should applaud stock options. • Continuation and expansion of stock options should Executive Compensation

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