Although recent censure of corporate
boards of directors as "passive" and
"supine" may be excessive, those who
criticize board performance have plenty
of substantive ammunition. Too many
corporate boards fail in their two crucial
responsibilities of overseeing long-term
company strategy and of selecting.
evaluating, and determining
appropriate. compensation of top
management. At times, despite
disappointing corporate performance,
compensation of chief executive officers
reaches indefensibly high levels,
Nevertheless, suggestions that the
government should legislate board
reform are premature. There are ample
opportunities for boards themselves to
improve corporate performance. Most
corporate boards' compensation
committees focus primarily on peergroup
comparisons. They are content if
the pay of top executives approximates
that of the executives of competing
firms with comparable short-term
earnings or even that of executives of
competing firms of comparable size.
However, mimicking the compensation
policy of competitors for the sake of
parity means neglecting the value of
compensation as a means of stressing
long-term performance. By tacitly
detaching executive compensation
policy from long-term performance,
committees harm their companies and
the economy as a whole. The
committees must develop incentive
compensation policies to emphasize
long-term performance. For example a
board's compensation committee can,
by carefully proportioning straight
salary and such short-term and longterm
incentives as stock options,
encourage top management to pursue
a responsible strategy.
The passage suggests which of the
following about government legislation
requiring that corporate boards
undergo reform?
A. Such legislation is likely to
discourage candidates from joining
corporate boards.
B. Such legislation is likely to lead to
reduced competition among companies.
C. The performance of individual
companies would be affected by such
legislation to a greater extent than
would the economy as a whole.
D Such legislation would duplicate
initiatives already being made by
corporate boards to improve their own
performance.
E Corporate boards themselves could
act to make such legislation
boards of directors as "passive" and
"supine" may be excessive, those who
criticize board performance have plenty
of substantive ammunition. Too many
corporate boards fail in their two crucial
responsibilities of overseeing long-term
company strategy and of selecting.
evaluating, and determining
appropriate. compensation of top
management. At times, despite
disappointing corporate performance,
compensation of chief executive officers
reaches indefensibly high levels,
Nevertheless, suggestions that the
government should legislate board
reform are premature. There are ample
opportunities for boards themselves to
improve corporate performance. Most
corporate boards' compensation
committees focus primarily on peergroup
comparisons. They are content if
the pay of top executives approximates
that of the executives of competing
firms with comparable short-term
earnings or even that of executives of
competing firms of comparable size.
However, mimicking the compensation
policy of competitors for the sake of
parity means neglecting the value of
compensation as a means of stressing
long-term performance. By tacitly
detaching executive compensation
policy from long-term performance,
committees harm their companies and
the economy as a whole. The
committees must develop incentive
compensation policies to emphasize
long-term performance. For example a
board's compensation committee can,
by carefully proportioning straight
salary and such short-term and longterm
incentives as stock options,
encourage top management to pursue
a responsible strategy.
The passage suggests which of the
following about government legislation
requiring that corporate boards
undergo reform?
A. Such legislation is likely to
discourage candidates from joining
corporate boards.
B. Such legislation is likely to lead to
reduced competition among companies.
C. The performance of individual
companies would be affected by such
legislation to a greater extent than
would the economy as a whole.
D Such legislation would duplicate
initiatives already being made by
corporate boards to improve their own
performance.
E Corporate boards themselves could
act to make such legislation
Best-
Amit
Amit
