Kalina is the CEO of Northfield Corporation. Who sets her compensation, and what types of compensation would she likely receive in addition to her salary? Can shareholders do anything to challenge her level of compensation if they think it is unfairly high in comparison to average employee compensation within the company?

The board of directors sets the level of executive compensation, and it is rarely linked closely to individual performance. It is common for executives to receive not only a salary, but also such things as stock options; termination payments upon death or even firing; retirement plans; death benefits; and perks such as country club memberships, cars, and possibly even a company jet. In 2005, compensation for the top 100 CEOs in the United States was 475 times as much as compensation for the average worker. There is little shareholders can do to challenge Kalina's compensation. To win, shareholders must prove that the board of directors violated the business judgment rule either by making a compensation decision that was grossly uninformed or by setting an amount so high it had no relationship to the value of the services Kalina performed.