MGMT3080 Chapter 13

What is one common method used by compensation committees to help set executive pay amounts?

Industry average salary surveys

Appoint an independent lead director

This allows for candid discussions about the company.

Hold open elections for board members

This allows for genuine choice of board candidates.

Board members might argue against Wynn's high executive compensation because ______, according to the case Corporate Governance and Executive Misconduct at Wynn Resorts. (Check all that apply.)

a culture of sexual misconduct was allowed to continue for decades the company earned a lower total shareholder return over the most recent five-year period

Individual investor

People with direct stock ownership; also called "Main Street" investors

Which topics do shareholders have the legal right to vote on? (Check all that apply.)

Selecting members of the board of directors Charter and bylaw changes Company mergers and acquisitions

Besides the right to vote, what are the other major legal rights of shareholders? (Check all that apply.)

To sell stock to others To receive annual financial reports To receive declared dividends

How is the Securities and Exchange Commission funded?

Corporate listing fees

Since the stock market collapse of 2008, how has the proportion of U.S. households that own stocks changed?

declined significantly

The term watchdog board of directors is best explained by which statement?

focuses primarily on legal compliance

The term corporate governance refers to ______.

the process by which a company is controlled or governed

In the United States, CEOs in 2016 made ______ times what the average worker did.

exactly 347

The primary goal of most shareholders is to make money through which means? (Check all that apply.)

Capital appreciation Dividends

True or false: The proxy advisory firm Glass Lewis gave Wynn Resorts an "A" grade for corporate governance practices in 2016 and 2017, according to the case Corporate Governance and Executive Misconduct at Wynn Resorts?

F

True or false: The movement to improve corporate governance has grown only in the United States, not in other parts of the world.

False

Insider trading is correctly described by which statements? (Check all that apply.)

It refers to trading stocks based on confidential information. It includes using confidential information to gain an unfair advantage. It includes disclosing confidential information to increase personal gain.

Social investors often promote their objectives through which means? (Check all that apply.)

Shareholder resolutions Stock purchase screening Stock divestment

Shareholders have requested increased proxy access by demanding what?

Shareholders demanded the right to nominate their own board candidates.

Which arguments could board members make to justify Steve Wynn's executive compensation, according to the case Corporate Governance and Executive Misconduct at Wynn Resorts? (Check all that apply.)

Shareholders had averaged a rate of return above that of the S&P 500. Wynn had built a well-known brand and had increased the value of several hotel properties.

Social investment is a strategy for promoting which objectives? (Check all that apply.)

Social Governance Environmental

Which principles of good corporate governance were illustrated by Wynn Resorts, according to the case Corporate Governance and Executive Misconduct at Wynn Resorts?

There were no good principles of corporate governance illustrated by Wynn Resorts.

The say-on-pay rules have had what effects on executive compensation? (Check all that apply.)

They provided a way for shareholders to express their views on compensation. Executive pay has fallen in places where these rules were in effect.

Hold elections for board members annually, not every other year

This can increase accountability and responsiveness to shareholders.

Diversity board membership

This widens the range of experiences, perspectives, and values.

How do top managers influence executive pay? (Check all that apply.)

Through ties of friendship with board members Through influencing the selection of board members

Other than financial gain, shareholders often invest for which reasons? (Check all that apply.)

To achieve social objectives To take control over a firm To achieve ethical objectives

Identify the primary goals of corporate governance.

To identify the strategic direction for the firm To balance stakeholder interests To develop internal policies

The term proxy access is best explained by which statements?

It is the shareholders' right to nominate their own candidates for the board of directors.

Most members should be outside directors

This allows the board to make impartial decisions.

Rank the top five reported 2014 global average annual CEO compensation by country from highest to lowest, according to Figure 13.4.

1. UNITED STATES 2. Switzerland 3. Germany 4. Spain 5. Australia

According to the say-on-pay rule of the Dodd-Frank Act, public companies must hold shareholder votes on executive compensation at least once every _____ years.

3

Increased institutional activism has generally affected company performance in what way?

It has improved.

Some support high executive compensation because of which reasons? (Check all that apply.)

High compensation provides an incentive for innovation. High salaries compensate high-quality talent. High pay is a reward for outstanding performance.

Identify the reasons why some have concerns about high executive compensation. (Check all that apply.)

High salaries divert funds that could have been used to pay shareholder dividends. High compensation creates resentment from lower-level workers. The relationship between company success and executive compensation is weak.

Why does the Securities and Exchange Commission (SEC) require publicly-held corporations to disclose significant financial information? (Check all that apply.)

Information disclosure safeguards shareholder interests. Shareholders have the right to know about company dealings. Future company goals are important to investors.

The term pilot board of directors is best explained by which statement?

It actively guides a company's strategic direction.

What is the current trend in corporate information disclosure as prompted by the SEC? (Check all that apply.)

More information is now available on company websites. More information is being disclosed.

Institutional investor

Organizations such as pension funds and insurance companies; also called "Wall Street" investors

Boards of directors can address the agency problem by doing what to executive compensation? (Check all that apply.)

Providing large stock option grants to executives. Basing executive compensation on the performance of the company.

What are the major functions of the Securities and Exchange Commission? (Check all that apply.)

Regulation of financial fraud Information transparency Regulation of unfair stock trading

Median total compensation of the chief executive of large public corporations typically includes which forms of payment in addition to a salary? (Check all that apply.)

Retirement benefits Stock options Bonuses

A manager tells his wife about his firm's latest acquisition before the news is made public. His wife then tells her brother. Which examples accurately illustrate insider trading? (Check all that apply.)

The manager's wife buys the firm's stock and earns a large profit before the news is publicized. The wife's brother buys the firm's stock and earns a large profit before the news is publicized.

The agency problem pits the interests of the firm against those of the firm's agent. In a corporation, who is the agent?

The managers in the company

In what ways has the ratio of top executive pay compared to average workers' pay changed over time? (Check all that apply.)

The ratio increased during periods of economic expansion. The ratio decreased during periods of economic contraction.

The European two-tier board system is best described by which statements? (Check all that apply.)

The supervisory board includes an independent chairperson. The executive board consists of the CEO and inside members.

A typical board of directors in the United States is accurately described by which statements? (Check all that apply.)

may include executives of other firms about 20 percent of members are women

Institutional investors have attempted to increase their influence over management because the alternative of ________.

selling blocks of shares reduces stock price and overall holdings.