Ceo Compensation And Financial Performance Essay

Ceo Compensation And Financial Performance Essay

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CEO Compensation and Financial Performance
As a staff member on the HR committee of the Board of Governors for this restaurant corporation, it is my duty to assist in the hiring process of the new chief executive officer (CEO). To facilitate the process, I will analyze an article published in the Journal of Foodservice Business Research named, “Assessing the Relationship of CEO Compensation and Company Financial Performance in the Restaurant Segment of the Hospitality Industry”, and prepare a comprehensive report on CEO compensation. The report will touch on the connection between a CEO’s pay and company performance, a decision on whether a pay scale should be developed based on the connection, and other significant or relevant findings.
First, to discuss the relationship between the compensation a CEO receives and the company’s performance is important. Studies on this particular topic are popular, since the topic is considered extremely controversial (Barber, Ghiselli & Deale, 2006, p. 66). A number of studies report a limited relationship linking the two, while other studies are conflicting and show positive statistical effects (Barber, Ghiselli & Deale, 2006, p. 66). Additionally, it is vital to note that an organization’s performance is calculated by using several variable, which include stockholders’ equity, stock performance, sales growth, and profitability (Barber, Ghiselli & Deale, 2006, p. 66). Likewise, CEO compensation is also a calculation of a number of variables, such as base pay, bonuses, restricted stock values, and value of options that can include all variables or exclude one or more from the calculation depending on the company and the method they choose to compensate their chief executive officer (Barbe...

... middle of paper ...

...p a pay scale for this organization? The results should be analyzed and a decision reached whether to study results produced a clear cut
and beneficial direction when it comes to determining if higher CEO compensation will reward the organization with a higher financial performance. After thorough analysis it has been determined there is a positive correlation between CEO compensation, rising stock prices, rising gross revenue, but no positive relationship with profitability (Barber, Ghiselli & Deale, 2006, p. 78). Indeed, this has resulted in a final decision of a pay-for-performance compensation plan, which means our new CEO will receive a base salary, value of equity-based compensation, and bonus incentive plan payments that are all performance based compensation (Barber, Ghiselli & Deale, 2006, p. 78).

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