Is the CEO compensation structure at Talent Partners optimal? Does it provide the appropriate incentives for the CEO to maximize shareholder value in all states of the economy? Why/why not?
The compensation structure of CEO at Talent partners is beneficial for both, the CEO and the shareholders of the company as well as it is also beneficial for the company as a whole. Since half of the compensation is linked with the stock price of the company, therefore, the CEO of the company would make his back breaking efforts in order to enhance the overall effectiveness of the operations of the company as well as he would strive to enhance the overall revenue and profitability of the company, as he would subsequently enhance the overall stock price of the company.
In addition to this, the CEO of the company would always act in the good faith of the company because if he would not act in good faith for the company, then it would decrease the overall efficiency of the performance of the company.Moreover, this would also decrease the overall profitability of the company, which would subsequently have a negative effect on the stock price of the company and thereby, decreasing the compensation of the CEO of the company.
Moreover, not paying full remuneration in cash to CEO is also beneficial for the company as the company would be able to maintain cash reserves more efficiently and effectively and would, therefore be prevented from the serious liquidity problems.
Furthermore, providing a time scale and targets to be achieved by CEO and directly linking that plan with the compensation of CEO also enhances the overall commitment and efforts of CEO in growing the revenues of the company.
Furthermore, the compensation plan also secures the interest of the shareholders of the company as the CEO of the company would make its back breaking efforts to increase the share price of the company by increasing the overall revenues and profitability of the company. Hence, it benefits the shareholders as they would be getting increasing returns on their investments.
How would you improve the CEO compensation package at Talent Partners?
In order to improve the compensation package of CEO, following changes should be made.
Executive Compensation at Talent Partners Case Solution
Providing fringe benefits:
Fringe benefits should be provided to the CEO of the company in order to enhance the overall motivational level of the CEO. Those fringe benefits would include, house accommodation, car allowances, as well as medical allowances. This would increase the commitment of CEO towards the company as it would boost up the overall motivational level of CEO.
Reducing the ratio of cash to option:
The CEO compensation plan comprises of half cash and half on option. This ratio should be changed to 3:1. This would also fuel up the motivational level of CEO as it would be more attracted towards the compensation plan. Thus, it would also boost up the overall performance level of the CEO.
Providing annual bonuses:
The CEO of the company should be provided with annual cash bonuses, as this would also make the compensation plan more attractive to the CEO of the company. This would also enhance the overall commitment and efficiency of the performance of CEO and would also decrease the frustration level of CEO. Moreover, it would also enhance the level of job satisfaction...........
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