CEO compensation

In my opinion the CEO should be purely compensated for increasing the intrinsic value of the company over long periods and for producing reasonable risk adjusted returns. In most cases this is hard to measure but quantitatively free cash flow growth measurement is as close as you can get to measuring increased intrinsic value.Ofcourse this is not the only criteria.In certain types of industries brand name recognition/reputation is as important. I recently found the best example of CEO comepsation while looking through proxy of O.I. Corporation ticker symbol OICO.

Mr. Lancaster. For 2010 and subsequent years while he is actively employed by the Company and in addition to his Base Salary as defined in his employment agreement, Mr. Lancaster will be eligible to earn a cash bonus equal to 10% of Free Cash Flow in excess of $3,000,000 annually, as adjusted by a charge of 15% on any Incremental Investment Capital (defined below). The charge for investment capital shall be applied annually year-over-year but shall be pro-rated based upon the month in which the invested capital is contributed by the Company. “Free Cash Flow” refers to the Company’s earnings before interest, taxes, depreciation, and amortization (“EBITDA”), less capital expenditures. “Incremental Investment Capital” refers to capital invested subsequent to January 1, 2010 pursuant to approval of the Company’s Investment Committee for strategic initiatives, such as the acquisition of a business or product line. The Committee has the discretion to exclude certain one time events such as the sale of assets from Cash Flows and to provide a discretionary bonus in addition to the Free Cash Flow based incentive. The revised Plan does not provide for an award of options to purchase shares of the Company’s common stock; however Mr. Lancaster remains eligible to receive an option to purchase up to 25,000 shares of the Company’s common stock as noted below.