Read the case and answer the questions that follow. Andrew Westbrook, a 15-year
ID: 361690 • Letter: R
Question
Read the case and answer the questions that follow.
Andrew Westbrook, a 15-year veteran in the consulting industry, is an assistant vice president of marketing for Titan Consulting, the second largest consulting company in the United States. As part of his compensation package, he has received stock options in the company over the years. Because Titan has grown rapidly during his time there, Andrew (along with many others at the organization) has reaped a great deal of benefit from the stock options he has received, even as an assistant vice president.
Like many companies, the value of Titan stock has decreased substantially over the past two years. The majority of Andrew's options entitle him to purchase stock for $22 per share; Titan's stock currently trades at $15. The ongoing global recession is expected to continue to weigh on Titan's results; the company (and its stock) is not expected to grow much in the short-to-medium time horizon. Titan policy prevents Andrew from selling his stock until he leaves the firm.
Given Andrew's situation and your knowledge about stock option plans, answer the following questions.
1-Under what circumstances will Andrew's stock options generate any gain for him?
If his individual performance exceeds expectations
If the stock price goes up from $15
If the stock price goes to $19, which is equal to ($22 + $15)/2.
If the company adopts a gain sharing plan
If the stock price goes above $22
2-When growth is high, extending stock option grants to lower levels of the organization as Titan did is likely to __________.
garner favorable tax treatment in the current year for the individual employee
be highly motivating to lower-level employees because they will perceive that they have a great effect on the organization's results
garner favorable tax treatment for the organization
make lower-level employees think like owners to a larger extent
enable employees at all levels to share in the organization's growth, increasing attachment to the organization
3- When growth is high, extending stock option grants to lower levels of the organization as Titan did is likely to __________.
garner favorable tax treatment in the current year for the individual employee
be highly motivating to lower-level employees because they will perceive that they have a great effect on the organization's results
garner favorable tax treatment for the organization
make lower-level employees think like owners to a larger extent
enable employees at all levels to share in the organization's growth, increasing attachment to the organization
4- The fact that Andrew cannot sell his shares until he leaves the organization is likely to _______.
make the program more motivating
decrease the motivation potential of the program for him
enable him to better plan his retirement
have little effect on his motivation
encourage him not to leave the company during a scandal
5- One reason why Titan might be less likely to grant employees like Andrew stock options in the future is that ________.
Andrew's stock options are taxed more heavily now than was the case in the 1990s
recent scandals about ethics have drawn attention to stock options
Andrew's stock places him in a higher tax bracket that his firm must match
academic research suggests that stock options are ineffective motivators for executive employees
customers are upset at executive pay, and stock options will cause Titan to lose business
______________________________________________________________________________
This activity has to do with the way executive pay may be determined. This case focuses on the chair of the board, Mary Cohn, at Super Mega Corp., a Fortune 100 company that is looking for a new CEO. As she prepares to negotiate a pay package with the board's chosen candidate, she needs to keep in mind the various ways in which pay and performance can be linked at the executive level and the responsibilities of the board of directors with regard to executive compensation.
After three years of subpar performance, Super Mega Corp., a Fortune 100 conglomerate, is hiring a new CEO. Mary Cohn, who took over as chair of the board from the previous CEO, is in charge of the process and is preparing to make an offer to the leading candidate. Before she does, she wants to carefully examine the various kinds of pay-for-performance plans she can offer to the candidate. It is critical that the compensation plan for the new CEO ensures that Super Mega Corp. is being managed in the long-term interest of the shareholders. In addition, Atlas pension fund, which owns 53% of Super Mega Corp., has been very unhappy about the pay of the executive team, and its management team wants Mary to ensure that CEO pay is set using incentives to carefully drive results. A balanced scorecard will probably be used to set pay.
Using your knowledge of executive pay-for-performance methods and Super Mega Corp.'s situation, answer the following question.
1- Mary's function in this case is to represent __________.
management
government
shareholders
employees
customers
2- One of the primary problems with executive pay in the United States that Super Mega Corp. needs to avoid is having compensation that is _______.
strictly limited by market forces
subject to high marginal tax brackets
direct pay more than $1 million before taxes
subject to industry or Securities and Exchange Commission (SEC) caps
always high, regardless of performance
3- One of the primary reasons for putting significant executive compensation "at risk" in the form of incentive pay is to _________
meet requirements of the SEC
improve employee fairness perceptions
include both short-term and long-term performance goals
avoid shareholder revolts
assert board independence
4- The design of the balanced-scorecard approach might combine measures to deliver value to all except _______.
shareholders
regulators
employees
customers
foreign owners
5- Mary wants to use a balanced scorecard to set pay because it _________.
is required by the Omnibus Budget Reconciliation Act of 1993.
will keep the company out of the press.
is insisted on by pension managers.
combines measures to reward achievement in a variety of goals.
helps reduce pay.
Explanation / Answer
1. Andrew stock option generate any gain for him only when the stock price will go above $22 , as because Andrew purchase the stock at the price of $ 22.
2. When a growth is high , extended stock option grants to lower level of organization as a titan did is likely to enable the employee at all level to share in the organizations growth ,increasing attachment to the organization, this moves of the organization also effect the profit of the company.
4. Andrew caanot sell his share until he leaves the organization is likely to enable him to better plan the retairment , as it can also benefitted him at the time of retairment.
5.Titan might be less likely to grant employee like Andrew stock option in the future is that academic research suggest that stock option are ineffective motivation sometimes for the executive employee.
case 2...........
1. Mary function in the case is to represent the management, as she work on the behalf of the company management.
2.. One of the primary problem with executive pay in the united state that super mega corp. need to avoid is heaving compensation that is strictly limited by the market foces.
3.One of the primary reason for putting significant executive compensation at risk in the form of incentive pay is to include both short term and long term performance goal , as it is given to the employee on the basis of their performance in the company.
4.The design of the balanced score card approach might combine measures to deliver value at all except foreign owners, as it does not include this.
5. Mary want to use balanced scorecard to set pay because it will keep the company out of the press.
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