CEO's compensation is determined by the board of directors. But what is preventing the board of directors from giving the CEO a ridiculous amount of money? For example, the CEO says to the board “next year when determining my salary give me an extra 50 million from our balance sheet and I will keep only 20 mill and give you guys the rest (only 4 people on the board and the CEO is one of them). This will completely screw over the stockholders but who cares? Say they get fire/ the shareholder's vote to remove/replace the CEO and board. The CEO and board still got a lot of money.
Also assume that the CEO has been there for a few years and usually gets paid $500,000
Leave a Reply