The discussion is focused on executive compensation,
which is a very important part of auditing the business
processes of any major organization.
If I had to choose a company to evaluate the executive
compensation, I would choose the General Electric
Company. GE has been in the news lately because of its
meteoric fall from grace. Not to mention, GE made an
announcement last week that the company will break up
into three companies. The company has been in free fall.
Long time CEO, Jeff Immelt, left the company more than
a year ago, and his replacement John Flannery was just
ousted recently because of his inability to restore GE to
its prior glory. a More recently, Larry Culp was given the
reigns to turn the company around and put it on the path
for success. Each of these gentlemen were highly
compensated executives. a In fact, John Flannery's
income was just over $9 million. a His salary was 157
times that of the median salary of a GE employee
according to executive pay watch. a In my opinion, I do not
think the compensation is fair or equitable. a It is an elite c-
suite club of executives that many will argue are overpaid
and overrated. There is no doubt that senior executives'
compensation should be tied to the long-term
performance of the organization. In addition, long term
contracts are another way to address the agency
problem that exists when senior executives make
decisions that affect the day to day operations who
might be tempted to act in a way that is contrary to the
interests of the shareholders.
PCAOB auditing standard # 12 addresses the
consideration of procedures to address the risk of
material misstatement. Also, the auditor should review
the minutes and other executive compensation policies
set by one of the ad hoc committees of the board of
directors to determine compliance. The proxy
statements should be examined and the associated
reports (e.g., expense reports and other charges incurred
by senior executives).
