Question

XYZ Pharmaceuticals recently announced that the clinical trials for a cancer drug failed to cure the illness. This announcement led to a dramatic decrease in the stock value of the company. The company hired a new CEO two years ago when the clinical trials for this drug had already initiated. Which one of the following is true about the compensation of the CEO of XYZ Pharmaceuticals?
- These entitle an executive to purchase company stock in the future for a predetermined price.
- This type of executive bonus is based on a bonus pool that is determined by a fixed-formula that is not determined by the executive’s performance.
- There is no simple answer as to what should be the compensation level of this CEO.

Answer 1

Answer:

There is no simple answer as to what should be the compensation level of this CEO.

Explanation:

Since the 1990s, CEO compensation in the U.S. has outpaced corporate profits, economic growth and the average compensation of all workers. Between 1980 and 2004, Mutual Fund founder John Bogle estimates total CEO compensation grew 8.5% year, compared to corporate profit growth of 2.9%/year and per capita income growth of 3.1%. By 2006 CEOs made 400 times more than average workers—a gap 20 times bigger than it was in 1965. As a general rule, the larger the corporation the larger the CEO compensation package.

In this case, there is not enough information to indicate what the compensation for the CEO should be.