Compensation and Benefits Essay

1466 WordsMay 6, 20136 Pages
Running head: Compensation and Benefits Abstract The intention of this paper is to evaluate executive compensation for the International Paper Company. The paper intends to increase your understanding into how CEO’s are compensated and how they exercise accounting options to capitalize the compensation, often at the expense of the shareholders. The paper will address avenues that CEO’s use to influence their compensation and I will provide information that reveals that there are incentives for CEO’s to manipulate earnings in order to increase their personal gain. According to Bill Gates, “executive compensation is a very important element to consider when evaluating an investment opportunity”. Mr. Gates revealed that executives who are not compensated properly might not have the incentive to perform in the best interest of the shareholders which in turn can be costly for the shareholders. Although new laws and regulations have made executive compensation apparent in company filings, in my opinion, many investors still don’t have a clue as to how to find and read the significant reports. This paper will focus on the Chairman and Chief Executive Officer (CEO) of International Paper, John V. Faraci. Faraci has been chairman and chief executive since 2003. John V. Faraci states that the corporate governance of International Paper is “We believe that good corporate governance is the foundation upon which we build and achieve our goals and provide value to our shareholders, customers and the communities in which we live. We uphold the highest ethical standards and are accountable for all that we do.” I have often wondered whether or not CEO’s deserve their multimillion dollar salaries. According to Kevin Murphy, Professor of Finance and Business Economics, CEO compensation is justified because CEO’s increase stock prices which in turn, increases

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