To dive deeper into the compensation for Estee Lauder Companies,
Inc. I chose this company because I am familiar with it, but don't know
much about the salary ranges and compensation packages. This was a
very interesting journey.
The current CEO of Estee Lauder Companies is Fabrizio Freda. His
total compensation for the fiscal year of 2021 was $65,996,985. Of
this, his base salary was $1,666,667. The majority of his earnings
came from stock awards, which were valued at $50,429,620.
Interestingly, in the category of "Other Compensation", his earnings
were listed at $721,792. To me, it is quite compelling that his
earnings that aren't significant enough to earn their own individual
categories are much,
much
higher than the salary I am expected to
provide for my family with. In comparison to other employees in the
company, Fabrizio's earnings were 1,925 times more. (AFL-CIO,
2022) This means that the average employee at Estee Lauder
Companies makes an annual salary of about $34,284. For a family,
this would be considered low-income. In my honest opinion, I do not
believe the executive is worth that salary. Yes, I understand that
executives often (but not always) have quite a full plate, but they
rarely work alone. The business is comprised of many individuals who
also have full plates and carry a lot of stress with them. To then carry
this stress home while making significantly lower wages than those at
the executive level, it is disheartening. Fabrizio's yearly salary alone is
more than what many hardworking people will see in their lifetime.
Based on my independent research, along with the discussion posts
of my peers, it appears that compensating CEO's with stock is quite
common and the value typically far exceeds the base salary. In my
opinion, this gives the CEO even more influence in the company,
which can be a good or bad thing, depending on the business and
CEO. On one side, this compensation encourages the CEO to keep
the company's best interest in mind, since the performance of the
stock will have a direct impact on the CEO. On the other hand, I do
not believe this is fair to other employees and continues to add to the
very apparent difference between employee and executive pay. It is
not common for lower employees to be given compensation greater
than their base salary in awarded stock. The cost to the company can
be severe if the CEO is not responsible with their decisions and hurts
the stock price with their actions (for example, think about how
Tesla's stock price fluctuates based on Twitter posts and other public
actions and decisions made by CEO Elon Musk). If the CEO uses their
ownership in the company to make a change that is not well received,
it can hurt the stock price at a cost to the company.
To mitigate the risks associated with fraud and misstatements in
compensation packages, it would be best for auditors to closely
follow Auditing Standard No. 12 - 10A. This requires auditors to look
closely at the relationships between a company's finances and their
executive officers. This includes a thorough reading of the
employment contracts set in place for each executive, as well as
examining regulatory filings with the Securities and Exchange
Commission, specifically regarding those that detail transactions
made to executive officers. (PCAOB, 2022) Auditors are also
responsible for ensuring that internal controls are in place that
adequately identify and mitigate risks. This includes Human
Resources and Payroll internal controls that require approvals and
regular compensation reviews. (Messier, et al., 2019) Further, at my
company, our Payroll department has a control regarding pay
increases. All out-of-cycle pay increases (any increase that occurs
outside of our mandated annual raises in March) that exceed 10%
require VP and executive level approvals, even up to the CEO, in
some instances. Our CEO's compensation is reviewed by the Auditing
Committee that my company reports to quarterly, and also by my
boss, the Chief Audit and Compliance Officer. To prevent fraud, it is
crucial that every employee, including executive officers, have their
pay reviewed regularly and that internal audit ensure the internal
controls are effective.
References
AFL-CIO. (2022). Highest Paid CEO's - The Estee Lauder Companies,
Inc. (EL). Retrieved from https://aflcio.org/paywatch/highest-paid-
ceos
Messier, W. Glover, S. Prawitt, D. (2019). Auditing & Assurance
Services: A Systematic Approach 11th Edition. McGraw Hill
Education.
Public Company Accounting Oversight Board. (2022). Auditing
Standard No. 12. Identifying and Assessing Risks of Material
