CEO Compensation & Organizational Structure

• Organizational structure refers to the arrangement of responsibilities within a company and starts form the top down

CEO Compensation

• In 2021, a typical CEO had to work approximately 6 hours to earn as much as a full-year salary for an average worker ($58,260)
• In 2021, the average S&P 500 CEO pay was $18.3 million
• Market demand and competition requires larger compensation to attract top talent in a competitive market
• Performance incentives tying executive interest with company success is another justification
• The risks and responsibilities CEOs take on are compensated with higher wages
• There is often little connection between CEO salary and actual company performance
• Luck often plays a part in success
• Lack of market demand and competition may mean over inflated salaries

Chief Executive Officer

• CEO is responsible for overall operation of the organization
• Praised when the company succeeds
• Blamed when the company fails
• Responsible for implementing strategies
• Responsible for ensuring the organization runs efficiently

Becoming CEO

• The board of directors plays the crucial role in selecting
• Internal and external candidates are considered
• Interviews are conducted
• Final decisions are made
• Primary goal is appointing a CEO whom can effectively lead towards strategic objectives and ensure growth

Board of Directors

• The board of directors evaluates performance
• Approves mergers, acquisitions. and divestitures
• The board appoints or fires officers
• Assessing the performance of the organization and its leadership is completed by the board
• The board has authority to approve or reject major corporate actions

Examples of Corporate Actions

• Google purchased YouTube in 2006 for $1.65 billion
• Microsoft acquired LinkedIn for $26.2 billion
• Microsoft acquired Activision Blizzard
• LVMH acquired Tiffany & Co.
• LVMH took bag of Christian Dior Couture for 6.5 billion euros
• Exxon and Mobil had $75.3 billion merger in 1998

Board of Directors

• The board has the authority to appoint, evaluate, and remove top executives, such as the CEO and other officers
• The primary job is to elect the right CEO
• If deemed ill-suited, then the board decides to fire the CEO
• Ensures no overreach by the CEO
• Provides independent judgment on major acquisitions

Shareholders

• Also known as stockholders, they are individuals who own shares or stocks in a company
• Partial owners of the company
• Entitled to certain rights
• Can vote on corporate decisions
• Receive dividends, which are a portion of the company's profits
• Shares are defined as units of equity ownership in a corporation
• Shares are acquired by purchase
• These would have to be acquired through a broker formerly

Fiduciary Duty to Shareholders

• The Board of Directors has a Fiduciary Duty to Shareholders
• Fiduciary Duty is a person or organization that makes financial decisions on behalf of another party
• Fiduciary Duty consist of duty of care to act with the care that an ordinary prudent person would exercise
• As well as duty of loyalty to act in the best interest of the company and its shareholders, subordinating personal interests

Fiduciary Duty

• Derived from trust law, where a holder of property gives to another person, who must keep it, solely for the benefit of another person
• Centered around a fundamental principle called "sole interest rule"
• Fiduciaries are required to act solely and exclusively in the interest of the persons to whom their fiduciary duties are owed

Shareholder Activism

• Large shareholders can engage in activism towards corporations
• Involves efforts of shareholders to influence policies, practices, and/or decisions
• A hedge fund uses their ownership stake in a company to advocate for changes that enhance shareholder value

Types of Shareholder Activism

• Shareholder resolutions involve proposals for consideration from all shareholders at the annual general meeting to enforce strategic changes
• For example, TCS Capital Management urged Yelp Inc. to explore a potential merge with Angi Inc
• Proxy contests is where an activist tries to gain control over a company's board of directors in order to make changes, by persuading shareholders to vote for their candidates
• Resorting to legal action is litigation to challenge specific corporate decisions, governance practices, or perceived breaches of fiduciary duty