Question

Are healthcare executives and in particular CEOs/Presidents compensated excessively? Why or why not?

(250 words)

Answer 1

Yes, health care executives are paid skyrocketing salaries.

Executives who are improperly compensated may not have the incentive to perform in the best interest of shareholders, which can be costly for those shareholders. While new laws and regulations have made executive compensation much clearer in company filings, many investors remain clueless as to how to find and read these critical reports. This article will take a look at the different types of executive compensation and how investors can find and evaluate compensation information.

Types of Executive Compensation

There are many different forms of executive compensation offering a variety of tax benefits and performance incentives. Below are the most common forms:

1. Cash compensation – This is the sum of all standard cash compensation the executive receives for the year. In the proxy statement, the company will list the base salary for each key member of the management team, such as the chief executive officer (CEO), chief financial officer (CFO), legal counsel, director of sales and other divisional heads.
2. Option grants – This is a list of all options granted to the executive; the information includes strike prices and expiration dates. Stock options, if used the right way, are a terrific way to inspire management to maximize shareholder value. However, there is a downside to options compensation. For example, management is awarded a significant options grant that is barely out of the money, meaning if the stock price goes up a little, management will be able to exercise options, convert them to common stock and sell the shares to reap a quick windfall.
3. Deferred compensation – This compensation is deferred until a later date, typically for tax purposes. However, changes in regulations have lessened the popularity of this type of compensation.

1. Long-term incentive plans (LTIPs) – Long-term incentive plans encompass all compensation tied to performance for tax purposes. Current tax laws favor pay-for-performance compensation.
2. Retirement packages – These are packages given to executives after they retire from the company. It is customary for some executives to receive health benefits upon retirement for years of service, or other reasonable perks. These are important to watch because they can contain so-called golden parachutes for corrupt executives or be payable regardless of whether the company meets its financial objectives or is even profitable.
3. Executive Perks – These are various other perks given to executives, including the use of a private jet, travel reimbursements and other rewards. These are found in the footnotes. Perks paid out to executives at small companies should be subject to even greater scrutiny because this type of greed is more likely to bankrupt smaller companies or contribute to annual deficits.