Stock-Based Compensation

Stock-BasedCompensation

Part1: Review of Article

AnArticle: Stockoption compensation, CEO pay, and corporate performance: aboard-level perspective.

Thisarticle demonstrates the statistical relationship between CEO stockcompensation and their corporate performance. The article explainsthe needs of boards of directors and the compensation committeeswhich are not found in other studies (Griner, 1996). It hasidentified and discussed how regulations developed affects thestock-based compensation, present results of an emphiricalinvestigation of stock based compensation and performancerelationship by the use of data. It uses statistical methodologywhich is used as a main unit to assess the compensation level ofevery CEO (Griner, 1996). Lastly, the article discusses theimplication of the stock based compensation on the directors of acompany and the compensation committee.

Thesample data uses the stock compensation of CEOs of 350 companies. Itimposed four restrictions on data collection, such as salary andbonus be disclosed separately, same CEOs in pay survey are the samewith those in the Forbes’ survey, corporate performance data to becomplete and the computation of measures should end in the samefiscal year. It used variables such as salary, bonus and the presentvalues (Griner, 1996).

Thearticle discusses that there is a positive existence betweencompanies and performance (Griner, 1996). Its limitations andrecommendations have been outlined. The article found out that forCEOs to be compensated, the compensation should depend on the modelbased on the firm’s size and the performance. The article has alsodemonstrated how regression analysis can be used to assessappropriateness levels of CEOs in relation to other employees(Griner, 1996).

Onelimitation includes the consideration of short term performance inlieu of long term performance. In addition, the components of stockbased compensation are only salary, bonus and the executive stockoption. Further variables such as interest rates, economic growth andconditions of labour markets can be incorporated in compensationdecisions. However, this article has not addressed theappropriateness of level of CEO compensation in relation to otherworkers (Griner, 1996).

Part2: Consistency of the Article With the Text BookStrategic Management:

AnIntegrated Approach, 11ed. By Charles Hill

AStrategic Management: An Integrated Approach, is a book written by Charles and Gareth (2014). The authors have presented and explained the complexities ofstrategic management through various current learning andparticipatory applications such as corporate performance. Thebook has integrated the closing cases after the chapter providingdiscussion opportunities.

Thearticle is consistent with the textbook since it has shared a commonconcept that is how corporate performance can be applied in companiesin decision making. It has both demonstrated that the companies CEOscan be compensated on their stock based on their performance.Whenever a company is not performing well, then the stock based ofthe CEOs will be lower (Griner, 1996). According to Charleset al (2014),the compensation committees have a key role in steering themanagement and performance of the company. This is also supported bythe article in that the decision making of the company lies with thevarious committees.

Thearticle differs with the article since the textbook has not shown theappropriateness level of the compensation of the CEOs while thearticle has shown it through the use of the regression analysis. Inaddition, the article has not brought out the concept of stakeholder involvement in company’s decisions in the achievement of goals. Ithas not incorporated also the external and internal factors affectingthe corporate governance of the company, the external and internalfactors have been explained comprehensively in the textbook (Charleset al, 2014).

Themain objective was to identify and discuss the regulatorydevelopments affecting the decision makings in decision pertaining tostock compensation and the relationship with the corporateperformance. The article has demonstrated how corporate performanceaffects the awarding stock compensation to the CEOs while thetextbook goes further to demonstrate that corporate performance whichpositively correlates with stock-based compensation can beincorporated into small and medium enterprises..

Theauthors of both the article and the textbook have demonstrated acomprehension of this field in the introductions and discussionsections due to its easy and correlative logical flow of information.

Thebook includes an open cases in its Chapters to build on thecomprehension of the corporate performance improvement through thestock-based compensation application (Charleset al, 2014).However, the book has incorporated the use of ethical exercisesenabling readers to put in practice the ethical concepts in theprocesses of corporate managements. Another difference between thebook and the article is that in the articlea lot of studies have not been cited and a lot of claims have notbeen justified hence one may not be convinced in some areas ofmathematical expressions and analysis and the impact of corporate ondecision making such as stock compensation.

References

Charles,W. L. et al, (2014).StrategicManagement: Theory: An Integrated Approach (11ed). Cengage Learning.

Griner,E. (1996). Stockoption compensation, CEO pay, and corporate performance: aboard-level perspective.Journal&nbspof&nbspManagerial&nbspIssuesPublisher,Volume:&nbspv8SourceIssue:&nbspn2.Retrievedfrom,www.freepatentsonline.com/article/Journal-Managerial…/18632778.html[Accessed on April 9, 2015]