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Motivation - case study

'Fat Cats'

Following the recession and the negative roles bank were seen to have played, the media have been full of stories about senior executives earning huge salaries and bonuses even when their companies have appeared to do less well than investors had expected.

A closer look at how some of these 'high-flyers' are paid shows that many are subject to a complicated mixture of PRP schemes, share options and lock-ins. Their actual salary may only form a small part of the total package to which they are entitled. The average earnings of the top directors in the US have now passed $6 million, but in the majority of cases the base salary is barely a quarter of this sum.


Question 1

Outline how a share option differs from PRP and a profit related bonus.

Question 2

Explain why such a large amount of an executives' final pay agreement is linked to performance.

Question 3

Examine the reasons why some shareholder groups and politicians are now questioning such large pay packages for executives.

Question 4

To what extent would you recommend paying executives more in share options and profit related schemes than salary?