This "problem" may interfere with the ideal of management pay set by "arm's length" negotiation between the executive attempting to get the best possible deal for him/her self, and the board of directors seeking a deal that best serves the shareholders, rewarding executive performance without costing too much.The compensation is typically a mixture of salary, bonuses, equity compensation (stock options,etc.), benefits, and perquisites.According to one anonymous insider, "When you've got a formula, you've got to have goals—and it's the people who are the recipients of the money who are setting these.It's in their interests to keep the goals low so that they will succeed in meeting them." and Verizon Communications) were known to include pension fund earnings as the basis of bonuses when the actual corporate earnings are negative, and discontinuing the practice when the bull market ended and these earnings turned to losses.
Companies such as Comverse, Verisign, F5 Networks, Intuit and Mc Afee - as well as Home Depot, Michael's Stores and United Health Group, to name a few - all engaged in this fraudulent activity to varying degrees and were forced to pay fines and penalties and conduct time-consuming and expensive restatements of their books.Mc Guire.) While the use of options may reassure stockholders and the public that management's pay is linked to increasing shareholder value—as well as earn an IRS tax deduction as incentive pay—critics charge options and other ways of tying managers' pay to stock prices are fraught with peril.In the late 1990s, investor Warren Buffett lamented that "there is no question in my mind that mediocre CEOs are getting incredibly overpaid.Observers differ as to how much of the rise in and nature of this compensation is a natural result of competition for scarce business talent benefiting stockholder value, and how much is the work of manipulation and self-dealing by management unrelated to supply, demand, or reward for performance.While an executive may be any corporate "officer"—including president, vice president, or other upper-level manager—in any company, the source of most comment and controversy is the pay of chief executive officers (CEOs) (and to a lesser extent the other top five highest-paid executives) of large publicly traded firms.Most of the private sector economy in the United States is made up of such firms where management and ownership are separate, and there are no controlling shareholders.