Many observers consider the hiring, supervision, and compensation of the chief executive officer (CEO) the board's most important job, because, while being a director is a part-time job, it's the CEO who runs the company full time. And the board counts on the CEO to give directors accurate information about the company's situation and performance, on which they base their decisions.
The question of CEO compensation is a difficult one for many boards. One of the major issues of corporate governance is how to compensate the CEO enough to attract and keep a talented professional and give him or her incentives to work on behalf of
shareholders.
At the same time, when compensation seems excessively high — for example, when the CEO receives a bonus in a year that the
stock
price dropped — the board runs the risk of being seen as working in the interests of the CEO over the interests of shareholders. Most corporate governance experts believe that CEO compensation should be tied to performance, either in terms of stock price or
earnings.
Executive compensation
In some particularly glaring cases, boards have granted extravagant perks to corporate executives with no obvious benefit to shareholders, such as the personal use of corporate money, facilities, and equipment. For example, some executives have been criticized for using corporate jets for their personal travel, or for taking large personal loans from the company. Because of these excesses, regulators have imposed new rules and restrictions on compensation committees and practices, in keeping with the Sarbanes-Oxley Act of 2002. In particular, companies are now forbidden to grant personal loans to directors or company officers.
