When you complete this course, you’ll receive a grade that represents a measure of your performance in it

Your grade will likely consist of four elements—homework, quizzes, exams, and class participation. Do some of these elements better reflect your knowledge of the material than others? Would the relative weights placed on the various elements in determining your final grade influence how much effort you expend to improve your performance on the different elements?

Would it be fair if you received a good grade regardless of your performance? The following article about chief executives at General Electric examines that very situation in a corporate context.

CEO Compensation at General Electric^*

General Electric (GE) was once the most valuable company in the United States, worth nearly $600 billion at the turn of the century. After famed chief executive officer (CEO) Jack Welch retired in 2001, the company began a long, steep decline resulting in a smaller company today worth around one-tenth what it was back in 2000.

While GE’s performance significantly declined over the years, compensation for then-CEOs Jeff Immelt and John Flannery did not. During his 16-year run as CEO, Immelt earned nearly $211 million in salary and incentive compensation. In 2016, while the company’s stock price remained flat, Immelt took home a $3.8 million salary, $4.3 million performance bonus, and nearly $1.2 million in miscellaneous compensation, including $257,639 for his use of GE’s private jet.

When Immelt retired under shareholder pressure in 2017, he left with at least another $112 million, mostly in supplemental pension plans and early vesting of stock options. His replacement, John Flannery, earned $5.8 million during his 14-month tenure as CEO. During his short time at the helm, GE’s stock price fell nearly 50%.

Companies measure and reward performance to motivate managers to work toward organizational goals. As the GE example illustrates, if rewards are inappropriate or not connected to sustained performance, managers can increase their compensation without supporting the company’s objectives. This chapter discusses the design, implementation, and uses of performance measures, which are part of the final step in the decision-making process.

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