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Thursday, January 10, 2008

A CEO Sets Compensation Standard

Following are the highlights of American Express CEO Ken Chenault's new compensation package. For once, it seems, a CEO of one of America's largest and most respected companies has his compensation squarely lined up with that of shareholders' interests.

By month's end, Chenault will have amassed options controlling 2.75 million shares of AmEx stock. To take advantage of these options, however, he must meet some hefty performance goals over the next six years. You heard it right, six years. In a world where performance is often measured on a quarterly basis, the distant time horizon enforces Chenault to focus on the big picture, rather than having a relentless short-term focus on "making the numbers."

For the option grant to kick in and be worth anything, here's what Chenault must accomplish:

  1. Earnings must grow no less than 15% per year on average.
  2. Revenue must grow at least 10% per year.
  3. Return on equity must equal 36% on average.
  4. Total return to shareholders must outperform the S&P 500 by 2.5% per year, on average.

Hats off to AmEx for taking the lead in promoting a truly responsible and shareholder-aligned compensation package.

Source & complete article: http://www.fool.com/investing/value/2008/01/10/american-express-sets-ceo-compensation-standard.aspx

5 comments:

Shankar said...

Compare this with Steve Jobs, who still insists on a 1 dollar an year salary ! :-)

Warm Rgds
Shankar

George Varghese said...

Accepting a 1$ salalary is something!! But there are few key differences.
1. Most of the guys who accept a 1$ salary (Apple, Google..) are founders of the company. As founders, they hold a very high percentage of the company shares.
2. They can sell their shares at any time. They may not sell their stake, but recently in Countrywide, founder CEO Mozilo accelerated his share sales amid the mortgage crisis (shares fell from 45$ to 6$).
3. Their stake is does not depend on the performance of the company over a long period of time (in this case 6 years).

I admire Ken Chenault (who is a non-founder Amex CEO) for taking this step. Especially when we have seen a lot of cases where CEOs get hefty pay and severence package even when they were asked to leave because of unsatisfactory performance of the company.

Vishal Mittal said...

Hi, nice collection of articles...

Are you into full time into fund mgmt?

Cheers
Vishal

Water Lion said...
This comment has been removed by the author.
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