Who Determines CEO Pay?
Most elements of CEO pay are determined by the Board’s Compensation Committee. It was common in the past for company insiders (including the CEO themselves) to sit on the Compensation Committee. Corporate governance reforms have made this occurrence largely a thing of the past. However, given the disproportionate number of peer and retired CEOs that sit on company boards and compensation committees, questions of conflicts remain. Peer CEOs have little incentive to stem skyrocketing CEO pay, since their vote as a board member could have negative repercussions on their own pay. Certain elements of CEO pay are acted upon by shareholders. First the shares allocated to option plans must be approved by shareholders because the granting of options reduces the shareholder’s ownership stake. However, the specific decisions on how many options to grant and to whom, as well as the terms of each option, are retained by the compensation committee. The second instance where shareholders get to vote
