JOSE MARIA COLLEGE FOUNDATION, INC.

Philippine-Japan Friendship Highway,

Panacan, Davao City

In Partial Fulfillment

of the Requirements for the

CMBE 4 - Basic Corporate Accounting (BSBA-FM-2)

Submitted by:

Ragas, Marcus

Dawis, Nicole Joy

Secad, Mecah

Tapang, Rea

Submitted to:

Jay Punayan, CPA , MPA

(September 24, 2023)

 Executive Summary

This study investigates the impact of CEO pay on the performance of the company

and compensation on the performance of the company. The investor concerns about

the excessive compensation have led some companies to limit the compensation

paid to their top executive. Study authors found this time, CEO pay did not positively

impact long-term stock performance. Additionally, overcompensation for

underperformance shows that executives receive a higher rate than stock

performance.

In summary, stock prices have a direct and significant impact on the compensation

of a CEO, as they are often tied to various stock-based incentives and awards

designed to align the CEO's interests with those of shareholders and incentivize

strong company performance.

Background

According to Adam Hayes (2023), the chief executive officer (CEO) is the highest-

ranking person in a company. While every company differs, CEOs are often

responsible for expanding the company, driving profitability, and in the case of public

companies, improving share prices. CEOs manage the overall operations of a

company. The study has a practical implication for policymakers, business owners,

shareholders, and executives by suggesting aligning their business strategies based

on compensation parameters for achieving the best firm performance. CEO

compensation schemes are mostly long-term incentives. Long-term incentives, as

the name suggests, are awards for CEO accomplishment over the course of three to

five years. As with short-term incentives, compensating committees scale up long-

term incentive schemes with objective and stretch incentives.

It's important to note that the structure and amount of CEO compensation can vary

significantly between companies and industries. Additionally, CEO compensation

practices have been a subject of debate and scrutiny, as excessive CEO pay and the

potential for conflicts of interest have led to calls for greater transparency and

accountability in executive compensation.

In summary, stock prices have a direct and significant impact on the compensation

of a CEO, as they are often tied to various stock-based incentives and awards

designed to align the CEO's interests with those of shareholders and incentivize

strong company performance.

 Case Evaluation

Stock prices can have a significant impact on the compensation of a CEO (Chief

Executive Officer). CEO compensation is typically structured in a way that ties

financial incentives to the performance of the company and, by extension, its stock

price. Here are some key ways in which stock prices affect CEO compensation:

Stock Options: Many CEOs are granted stock options as part of their compensation

packages. Stock options give the CEO the right to buy a certain number of company

shares at a predetermined price, known as the "strike price." If the stock price

increases above the strike price, the CEO can exercise these options, buy the

shares at the lower price, and sell them at the current market price, resulting in a

profit. Higher stock prices can lead to more valuable stock options for the CEO.

Restricted Stock: CEOs may also receive grants of restricted stock, which are

shares of the company's stock that cannot be sold or transferred until certain

conditions are met, such as a specified vesting period or the achievement of certain

performance targets. When stock prices rise, the value of these restricted shares

increases, directly benefiting the CEO.

Performance-Based Bonuses: Many CEO compensation packages include

performance-based bonuses tied to specific financial metrics, including stock price

performance. When the company's stock price rises, it often indicates that the

company is performing well, and this can trigger larger bonuses for the CEO.

Long-Term Incentive Plans: Some companies offer long-term incentive plans

(LTIPs) that include stock-based awards. These plans are designed to align the

interests of the CEO with those of shareholders, as they are based on the company's

long-term performance, including stock price growth.

Share Ownership Guidelines: Some companies require their CEOs to own a

certain number of shares in the company or a multiple of their base salary. As the

stock price rises, CEOs may need to acquire more shares to meet these ownership

guidelines, leading to increased stock ownership and wealth tied to the stock price.

Stock-Based Retirement Benefits: CEOs may also have stock-based retirement

benefits, which can grow in value as the stock price increases. This can provide

long-term financial security for the CEO.

 Proposed Solution

Problem 1: Stock prices affect various corporate decisions such as the amount of

the CEO compensation.

ALTERNATIVES ADVANTAGES DISADVANTAGES

Most executive compensation If your company performs very

plans include a fixed yearly well, but you are only

salary, also known as a base compensated with cash

CEO
salary. Companies often pay incentives, for example, you
Compensation
this throughout the year in could miss out on a huge
Plan
monthly or bimonthly amounts. potential for stock appreciation.

Benefits: Executives may Also, compensation paid through

receive benefits like health a long-term incentive plan will be

insurance, life insurance, and taxed.

severance pay.

If shareholders are happy and Stock prices are risky and

the company is doing well, as volatile. Prices can be erratic,

reflected by its share price, its rising and declining quickly,

High Stock
executives are likely to keep often in relation to companies'
Prices
their jobs and receive increases policies, which individual

in compensation. investors do not influence. A

high stock price also tends to

 discourage a potential takeover.

Conclusion

In general, the CEO has a huge responsibility in the company. The performance of

the company will depend on the CEO, and the Stock prices will be affected if the

company cannot manage successfully

- That's why the CEO ensures that the company runs as best it can and achieves

financial success. Higher CEO compensation leads to higher firm performance.

- The CEO also plays a critical role in ensuring an appropriate balance between

near-term profit initiatives).

Recommendation

CEOs are honestly increasing their salaries and incentives and based on their

wages they can develop and grow their company and increase their income but they

should be fair to their other employees, their employees are also part of their

Company, and the employees should also receive the fair salary and incentives so
that they want to stay that company and I recommend that if the sales are good and

high the incentives or compensation also become high, aside from that they should

pursue the consumer.

How do stock prices affect the compensation of the CEO? Stock prices affect various

corporate decisions such as the amount of CEO compensation. The CEO should be

careful when it comes to decision making and aside from that the CEO should care

about the stock prices because a company's stock prices reflect investor perception

of its ability to earn and grow its profit in the future.

Implementation

Goals Step Description Implementation

Incentives -Define Objective 13th Month

-Determine the Budget

-Select the Right

Incentives

Stock Price -Analyze Price Trends 3 Months

-Select a Stock

Higher Firm -Set Clear Objectives and 6-12 Months

Performance Goals

- Assess the Current

State

- Identify Key
 Performance Indicators

Problem 1: Stock prices affect various corporate decisions such as the amount of

the CEO compensation.

Decision Criteria Total

Alternative 1 2 3 4

1. Promotion of diversity 15 10 15 20 60

and inclusion

2. Alignment with cultural 15 10 10 20 55

values.

3. Global Consistency 20 20 20 10 70

and simplicity

sources: True Tamplin, BSc, CEPF®. (2023, July 4). Executive Bonus plans . Google. Retrieved September 23, 2023, from

https://www.financestrategists.com/financial-advisor/long-term-incentive-plans/executive-bonus-plans/. Ceo Worldwide . (n.d.). CEO

WORLDWIDE . Google. Retrieved September 25, 2023, from https://www.ceo-worldwide.com/blog/ceo-compensation-structure-incentives-and-

salary/.Craig rnhillot. (n.d.). Does Higher CEO Pay Produce Better Company Performance?. Google. Retrieved September 25, 2023, from

https://chiefexecutive.net/higher-ceo-pay-produce-better-company-performance/amp/. Somer Anderson , T. I. T. (2023, January 26). How Does a

Change in CEO Impact Stock Price?. Google. Retrieved September 25, 2023, from https://www.investopedia.com/ask/answers/010815/how-

does-change-ceo-impact-stock-price.asp. C.S. Agnes Cheng, Iftekhar Hasan, Feng Tang and Jing Xie. (n.d.). How Market Feedback Affects CEO

Pay. Google. Retrieved September 25, 2023, from https://clsbluesky.law.columbia.edu/2022/12/13/how-market-feedback-affects-ceo-pay/?

amp=1. Vikki Velasquez , A. H. (2023, April 12). Chief Executive Officer (CEO): What They Do vs. Other Chief Roles. Google . Retrieved

September 25, 2023, from https://www.investopedia.com/terms/c/ceo.asp. Christopher gan, U. N. K. (n.d.). Executive Compensation and Firm

Performance Relationship. Google . Retrieved September 25, 2023, from https://www.worldscientific.com/doi/10.1142/S0219091522500084.

 Table of Contents

Contents Pages

Executive Summary

And Background

Case Evaluation

Proposed Solution

Conclusion

Recommendation

Implementation

Citation