Today we talked about executive compensation, a topic debated in Board rooms around the world. Overall, the gap in compensation between entry-level employees and CEOs has been widening in the last ten years (especially in the investment banking sector). This has caused lots of concern, and prompted proposals for new legislation to put a limit on compensation. Our case centered on efforts by the AFL-CIO to force boards to submit compensation plans to a shareholder approval vote.
In our discussion, the Europeans were generally much more willing to entertain a cap on executive pay than the Americans. One common practice that gets close to a cap is to use a programmed structure where a maximum 60% gap exists between senior management and the CEO, for example, if the CEO makes $300,000 the top senior manager would make 60% or $180,000.
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