Page 178 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

164 The Complete Guide to Executive Compensation

controls came back in the third quarter of the century along with higher taxes. Much of the
third period also had high tax rates before being dramatically reduced near period end. In the
last period of the twentieth century and the beginning of the twenty-first century, tax law,
SEC requirements, and accounting standards all focused on one or more components of
the pay package.

SUMMARY AND CONCLUSIONS

The stakeholders significantly affect the design of pay programs because they have different,
sometimes conflicting, objectives. For example, employees look for employment as well as
good pay, shareholders want a good return on their investment, the rulemakers prescribe
regulations to be followed, suppliers look for purchases of their goods and services, customers
look for quality-priced products/services when needed, and executives look to be paid hand-
somely for achieving all of the above to the extent possible.
Table 4-40 recaps and summarizes the previously described stakeholder interest in execu-
tive pay by time period. One would expect the interest of customers, employees, shareholders,
and suppliers to be linked inversely to how well they are faring. The rulemakers’ interest
seems to be continually increasing, making it more and more difficult to design pay programs
that do not cause serious problems with one or more rulemaking authorities. And, of course,
executive interest is high, especially since risk (contractual employment) seems not to decrease
but only increase.

1900–1925 1926–1950 1951–1975 1976–2000 2001–Present
Executive High Moderate High High High

Employees Low Low Moderate High High

Shareholders Low Low Moderate High High
Customers Low Low Low Low Moderate
Suppliers Low Low Low Low Moderate

Rulemakers Low Moderate Moderate High High
Table 4-40. Stakeholders’ historic interest in executive pay

Some suppliers and companies in the threshold stage find it mutually advantageous for
the company to “pay” in the form of stock options. More than one celebrity took a large stock
option in such a company instead of a significant fee to promote the company product. Fee
consultants have done the same.
Companies get themselves in difficulty because they do not focus on all of their stake-
holders or meet the requirements of the rulemakers. Really successful companies nurture their
relationships with their shareholders, their community, their suppliers, and their employees.
Similarly, the executive has a number of stakeholders: family, friends, community, work
associates, and employer. Like the employer, the executive must keep these relationships
in balance.