Was Boeing’s Compensation Committee Sufficiently Independent in Judging the Business Risk of the 737 Max?

13 Pages Posted: 8 May 2019 Last revised: 1 Jul 2021

See all articles by Dov Fischer

Dov Fischer

Brooklyn College, Murray Koppelman School of Business

Darline Augustine

CUNY Brooklyn College

Ngoc Cindy Pham

CUNY Brooklyn College

Juehui Richard Shi

Angelo State University

Date Written: April 5, 2019

Abstract

Boeing’s 2011 launch of the 737 Max has been a disastrous decision for the company and could even threaten its long-term viability. In the 2011 letter to shareholder, the CEO said it will “reduce our business risk substantially for the next decade.” The CEO also convinced his compensation committee to factor “risk reduction” into its measure of economic profit and company performance score. Consequently, CEO pay rose from less than $20 million in the two years preceding 2011, to over $26 million in the three years after 2011. Coincidentally, the CEO was a long-term veteran of General Electric, as were two of the four members of the compensation committee. This case study illustrates that management can capture the compensation committee and put into place compensation incentives that can harm the company in the long-run.

Keywords: Boeing 737 Max, Incentive Pay, Compensation Committee, Non-Gaap Performance Measures, MCAS

JEL Classification: G30

Suggested Citation

Fischer, Dov and Augustine, Darline and Pham, Ngoc Cindy and Shi, Juehui Richard, Was Boeing’s Compensation Committee Sufficiently Independent in Judging the Business Risk of the 737 Max? (April 5, 2019). Available at SSRN: https://ssrn.com/abstract=3370066 or http://dx.doi.org/10.2139/ssrn.3370066

Dov Fischer (Contact Author)

Brooklyn College, Murray Koppelman School of Business ( email )

2900 Bedford Avenue
Brooklyn, NY NY - New York 11210
United States

Darline Augustine

CUNY Brooklyn College ( email )

2900 Bedford Avenue
Brooklyn, NY 11210
United States

Ngoc Cindy Pham

CUNY Brooklyn College ( email )

2900 Bedford Avenue
Brooklyn, NY 11210
United States

Juehui Richard Shi

Angelo State University ( email )

2601 W. Avenue N
San Angelo, TX 76909
United States

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