| The Sarbanes-Oxley Act of 2002 missed something. | | | | Former CEO of AIG William McGuire is an example of |
| The Public Company Accounting Reform and Investor | | | | a CEO that was not the Chairman of the Board. In |
| Protection Act of 2002 did not include, as it relates | | | | 2005, McGuire received for one year, $128,400,000 in |
| to "Investor Protection," the elimination of the CEO's | | | | total compensation. |
| ability to become both the CEO and Chairman of the | | | | That's: |
| Board of Directors. Want to protect shareholders | | | | -$10,400,000 per month (12 months per year), or |
| from White Collar Crime? Separate the two roles. | | | | -$2,418,605 per week (4.3 weeks per month) or |
| Why separate the two roles? One accounting | | | | -$60,465 an hour (40 hour work week) |
| principle has a lot to say about it, separation of | | | | The number that astounds most is that the CEO |
| duties. To better understand why these roles should | | | | made over 60k an hour. At over 60k an hour, that's |
| be separated, an understanding of corporate | | | | more than the average American's annual household |
| governance is appropriate. | | | | income. Can you imagine what this CEO's total |
| Executive Board vs. Supervisory Board | | | | compensation might have been had he been both the |
| All publicly held companies in the U.S. have two | | | | CEO and Chairman of the Board? If the roles are split |
| distinct boards: The Executive Board and The | | | | and the Board of Directors believes the total |
| Supervisory Board. | | | | compensation is excessive, at that point they have |
| The Executive Board is comprised of Officers such | | | | the authority to change the CEO's compensation |
| as the Chief Executive Officer (CEO), the Chief | | | | instead of having their hands tied by the Chairman if |
| Financial Officer (CFO), the Chief Information Officer | | | | the individual is also the CEO. Boards do vote on |
| (CIO), and the Chief Operations Officer (COO), to | | | | issues but one thing is undeniable, the Chairman has a |
| name a few, to handle the day-to-day operations of | | | | substantial amount of influence. |
| a company. | | | | Companies Where CEO Is Also Chairman |
| The Supervisory Board is comprised of the Board of | | | | What do the following companies have in common? |
| Directors, which is a body of elected or appointed | | | | AIG, GM, and Chrysler...they're all in financial trouble. |
| persons who oversee the activities of a company. | | | | What else do they have in common? They have |
| When the CEO is also the Chairman of the Board, | | | | CEOs who are also the Chairman of the Board. The |
| the individual is now given the two most powerful | | | | list goes on as far as companies that do not split the |
| and influential roles of a company. This creates little | | | | roles of the CEO and the Chairman of the Board. |
| to no accountability that is internal to the company, | | | | Stats: Europe |
| only external i.e. Government Regulations. Although | | | | Let's take a closer look at Europe. In Britain, 95% of |
| the individual is accountable to the shareholders, what | | | | companies have the roles split. A survey completed |
| can the shareholders do after the fact? By then, the | | | | by Christian & Timbers showed that 97% of |
| CEO/Chairman has already moved on to the next | | | | European executives believed that the CEO should |
| company. | | | | not be the Chairman of the Board. To note, |
| CEO Compensation Is Decided By The Board | | | | shareholder returns were reduced by 5% in |
| Just think, if you are the CEO of a company, who | | | | companies that split the roles. In America, only about |
| determines your compensation? Well, if you guessed | | | | 20% of companies have the roles split and some |
| the Board of Directors, you are correct. See the | | | | 85% of executives believed the roles should be split. |
| problem yet? When the CEO is also the Chairman of | | | | Although the Company's returns may be lower, the |
| the Board, the CEO has great power and influence | | | | one thing shareholders should be thinking is: |
| when it comes to determining their salary, stock | | | | At least the Company is not going bankrupt as a |
| options, and overall compensation. If the Chairman is | | | | result of Corporate Governance Breakdown! |
| deciding the total compensation of the CEO, the | | | | Solution: to create more accountability and establish |
| hands of the shareholders' are tied. | | | | an atmosphere of Corporate Governance, separate |
| A Closer Look At A CEOs Total Compensation | | | | the role of the CEO and the Chairman of the Board. |