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Heads or Tails, Some CEOs Win the Pay Game
Key Excerpts from Article on Website of Bloomberg Businessweek


Bloomberg Businessweek, October 4, 2012
Posted: October 16th, 2012
http://www.businessweek.com/articles/2012-10-04/heads-or-tai...

Most companies in the Standard & Poors 500-stock index pay their CEOs annual bonuses that are conditional on meeting specific goals. Yet companies often find ways to lower or reset the performance benchmarks to ensure that their CEOs get at least a portion of their bonus. The practice, which has become more frequent since the 2007 economic downturn, risks turning bonus plans into a meaningless exercise, says Carol Bowie, head of Americas research at ISS Governance. Bonus plans are not simply a mechanism to deliver pay, she says, but they should be designed to focus executives on the kinds of operational metrics that are going to deliver value. Companies often justify moving the goal posts as a way to protect executives from events out of their controlbad luck, such as a hurricane or rising fuel costs. Yet CEOs also benefit financially when good luck strikes. Departing from a bonus plan only works if a board is willing to use it on the upside and the downside, says Blair Jones of Semler Brossy Consulting Group. If its only used for the downside, it calls into question the process. Several studies of U.S. CEO pay have confirmed the lopsided practice. One study, from researchers at Claremont Graduate University and Washington University in St. Louis, found that executives lost far less pay for bad luck than they gained for good luck.

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