Samuel Tang & Hulland Bui

 

INTRO, OVERVIEW OF TOPIC

-CEO’s, the head, the big cheese, everybody knows of them, and everybody wants to be them.

-They are easily one of the highest paid positions within a company, often times, make at least 10 times what the President of the United States makes.

-Their pay cheques are often within the millions

-There is a CEO for every company that you can imagine

-Some CEO’s that you may know are, Steve Jobs (apple), Bill Gates (Microsoft), Warren Buffet (Berkshire Hathaway), Larry Page (Google), Mark Zuckerberg (facebook).

-These people usually have more money than they can even use, however many of them are philanthropists.

 

EXAMPLES OF CEO’S AND THEIR PAY, A SMALL COMPARISON

Well first of all, executives would be paid “an executive compensation” this basically means that their pay consists of many different things combined. Such as stock options, golden parachute, bonuses, etc.

-Ted Rogers, $21.5 million

-The President, $400,000

-Steve Jobs, $1

Why is this so low?

 

MAJOR DEVELOPMENTS/AFFECTS TO THE ACCOUNTING PROFESSION

You may be wondering why there is such a huge range, and why the CEO of Apple only makes $1 a year.

(Well, in reality, Steve Jobs doesn’t actually make $1, that’s just what it says on his job description)

How else would he get his money?

(Well, sometimes they would be paid in the form of shares and bonuses)

Before SFAS 123 and all of that jazz, companies didn’t need to write down any of the salary given in the form of shares.

In 2006 the FASB required companies to expense the value of the stock options given to employees. Before that, SFAS 123 required only to state that they used stock options in the foot note and to state a fair value, because stating the stock prices would have a “negative effect” on their actual stock prices.

They didn’t put it into full effect because the dot com boom relied heavily upon stock options that they gave to their employees, because they weren’t seen as that profitable or profitable yet. Also it gave incentive to work harder, as the results would directly affect you. Some companies took the initiative of starting to put in stock option expense in order to give themselves a good rep, in light of all the companies that were being exposed for accounting fraud.

So, the problems were that CEO’s would artificially pump up their stock prices to increase their gains (if they were planning on leaving sooner).

It wouldn’t show up on the income statements.

It has its advantages when it comes to taxes as well. Certified/official stock option is not taxed, when received the option grant, this is because the number is ever fluctuating. Non-qualified stock options however are taxed.

Options Backdating, so some would state the expense as the lowest day that the stock has closed within the month.

June 15, 2005 was when companies had to start expensing stock options, which solved only one of the major problems. It was the GAAP SFAS 123(R).

The Financial Accounting Standards board (FASB) pushed the new trendy rule called the SFAS-123.  What was this rule?  This rule made all companies post their stock options as expenses on their income statement.  As of a result of this, there were net income reductions and also this gave stockholders a better glimpse of everything.

 

Work Cited:

 

Pizzigati, S.(2008, September 16) Let’s get serious about CEO pay.

Retrieved March 22, 2011 from ourfuture.org

< http://www.ourfuture.org/blog-entry/2008093816/let-s-get-serious-about-ceo-pay>

 

Knowledge @ Horton, (2006, May 3) How new accounting rules are changing the way CEO’s are getting paid.

Retrieved March 22, 2011 for Knowledge @ Horton

< http://knowledge.wharton.upenn.edu/article.cfm?articleid=1465>

 

Financial Accounting Standards Board, Summary for interpretation No.44.

Retrieved March 22, 2011 from fasb.org

< http://www.fasb.org/summary/finsum44.shtml>

 

(2004, September 21) Bill Gates Quotes:  Wealth quotations – Master of Business, Online celebrities News, Reference and Society

Retrieved on April 6th, 2011 from money.cnn.com

< http://money.cnn.com/2004/09/21/technology/gates_pay/index.htm >

 

Williams. R (2010, August 5) Are CEO salaries out of control?

Retrieved on April 6th, 2011 from business.financialpost.com

< http://business.financialpost.com/2010/08/05/are-ceo-salaries-out-of-control/#comments >

 

Peterson. J (2010, April 22) Are CEO salary and compensation plans of control-YES

Retrieved on April 6th, 2011 from www.usmoneytalk.com

< http://www.usmoneytalk.com/finance/are-ceo-salary-and-compensation-plans-out-of-control-yes-904/ >

 

“CEO pay greed soars out of control while workers earn less”

Retrieved on April 6th, 2011 from http://www.fa-ir.org

< http://www.fa-ir.org/ai/wagegap.htm >

 

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