Suppose you were a member of Company X’s board of directors and chairperson of the company’s compensation committee. What factors should your committee consider when setting the CEO’s compensation? Should the compensation consist of a dollar salary, stock options that depend on the firm’s performance, or a mix of the two? If "performance" is to be considered, how should it be measured? Think of both theoretical and practical (i.e., measurement) considerations. If you were also a vice president of Company X, might your actions be different than if you were the CEO of some other company?

Well, in my point of view, CEO's compensation should include dollar salary and stock options. Because CEO needs to be shareholder in the company too. It actually gives him sense of ownership in company.

Performance of CEO must be measured by using 360 degree evaluation system in which subordinate, Board of directors and clients. In this way chairman of compensations committee will have clear understanding of CEO's performance. Another factor needs to be considered here that is company's performance measure should also be considered as CEO's performance. Yes, CEO's performance measure will be a bit different then other employees. We need to consider initiatives to increase share value and dividend is also part of CEO's performance. Also, many companies design their Salary slabs for this purpose, which contains expected salary for each level of management. That document can also help.

My decision in both the situations given in question will remain the same. Because that's the industry practice. If I were the vice president then i will choose the same technique described above.