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Althoughrecent censure of corporate boards of directors as “passive” and “supine” maybe excessive, those who criticize board performance have plenty of substantiveammunition. Too many corporate boards fail in their two crucialresponsibilities of overseeing long-term company strategy and of selecting,evaluating, and determining appropriate compensation of top management. Attimes, despite disappointing corporate performance, compensation of chiefexecutive officers reaches indefensibly high levels, nevertheless, suggestionsthat the government should legislate board reform are premature. There areample opportunities for boards themselves to improve corporate performance.
Most corporate boards’ compensation committees focus primarily on peer-groupcomparisons. They are content if the pay of top executives approximates that ofthe executives of competing firms with comparable short-term earnings or eventhat of executives of competing firms of comparable size. However, mimickingthe compensation policy of competitors for the sake of parity means neglectingthe value of compensation as a means of stressing long-term performance. Bytacitly detaching executive compensation policy from long-term performance,committees harm their companies and the economy as a whole. The committees mustdevelop incentive compensation policies to emphasize long-term performance. Forexample a board’s compensation committee can, by carefully proportioningstraight salary and such short-term and long-term incentives as stock options,encourage top management to pursue a responsible strategy. ------------------------------------------------------------------ Q14 According to the passage, the majority of compensation committees put thegreatest emphasis on which of the following when determining compensation fortheir executives? A. Long-term corporate performance B. The threat of government regulation C. Salaries paid to executives of comparable corporations D. The probable effect the determination will have on competitors E. The probable effect the economic climate will have on the company -------------------------------------------------------------------- Q15 The passage suggests which of the following about government legislationrequiring that corporate boards undergo reform? A. Such legislation is likely to discourage candidates from joining corporateboards. B. Such legislation is likely to lead to reduced competition among companies. C. The performance of individual companies would be affected by suchlegislation to a greater extent than would the economy as a whole. D. Such legislation would duplicate initiatives already being made by corporateboards to improve their own performance. E. Corporate boards themselves could act to make such legislation unnecessary. -------------------------------------------------------------------- Q16 Which of the following best describes the organization of the passage? A.A problem is acknowledged, the causes are explored, and a solution isoffered. B.A question is raised, opposing points of view are evaluated, and several alternativeanswers are discussed. C.A means of dealing with a problem is proposed, and the manner in which a solutionwas reached is explained. D.A plan of action is advanced, and the probable outcomes of that plan arediscussed. E.Two competing theories are described and then reconciled. |
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