Amber,a publicly held corporation, currently pays its president an annual salary of $900,000. In addition, it contributes $20,000 annually to a defined contribution pension plan for him. As a means of increasing company profitability, the board of directors decides to increase the president’s compensation. Two proposals are being considered. Under the first proposal, the salary and pension contribution for the president would be increased by 30%. Under the second proposal, Amber would implement a performance-based compensation program that is projected to provide about the same amount of additional compensation and pension contribution for the president.
a. Evaluate the alternatives from the perspective of Amber, Inc.
b. Prepare a letter to Amber’s board of directors that contains your recommendations. Address the letter to the board chairperson, Agnes Riddle, whose address is 100 James Tower, Cleveland, OH 44106.