Question.1634 - Case Study 1 United States Auto Industry Back on Top … ofCEO PayDuring the financial crisis, many executives’ pay was stifled, reduced, oreven withheld. Among the hardest hit was the U.S. auto industry.Shareholder groups, union leaders, political officials, and the generalpublic all demanded change in the way auto industry executives weregetting rich while their cars were getting poor. For example, Ford madesome major cuts for its executives and its employees.This is why people were shocked to find out that for 2011 the CEO of Ford,Alan Mulally, was to receive $56.5 million in stock awards. Even today, itis one of the richest pay packages ever given to a top executive in theauto industry—and it is even after all the clamor over sky-high executivepaychecks. Is it too much?That depends on who you ask. For most, it seems unreasonable that aboss would make more than 1,000 times the pay of the average worker.However, if you ask Ford workers who have seen Mulally steer Ford backfrom the edge of bankruptcy, they probably would not complain toomuch. If you asked Ford’s shareholders, it would be hard for them tooverlook the fact that Ford shares have gone from $1.56 when Mulallyfirst took over to $14 a share. If you ask Ford dealers, they may be toobusy selling one of the strongest lineups of cars around to answer.Of course, no one really knows if Ford would have been sitting in such agood position regardless of Mulally. On one hand, there are plenty offactors, such as a national economic recovery, that led to Ford’s382improvements that Mulally clearly could not have had a finger on. On theother hand, there are plenty of companies that would be willing to pay$50 million if they knew their company would rebound as Ford hasunder Mulally.Questions1. Are CEOs and key corporate executives worth the large paypackages they receive? Explain.2. Do you agree with Peter Drucker that corporate executivesshould receive compensation packages no larger than a certainpercentage of the pay of hourly workers? Explain.3. Will the Dodd–Frank Wall Street Reform and ConsumerProtection Act giving shareholders the right to vote onexecutive pay influence the size of these packages in the future?Explain.Source: Adapted from Phil LeBeau, “Mulally and Bill Ford Collect $100 Million Pay Package,” CNBC (March 8, 2011).
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