The following elements are relevant to all cases: compensation alternatives, marginal tax rates, financial reporting constraints, dividend policy, share repurchases, and earnings management and real-activities management. These conceptual issues provide the backbone for any in-class discussion of the case for instructors. Specifically, instructors can ask students about what compensation alternatives they chose and the expected impact students see for those alternatives, along with any unintended consequences associated with those choices.

Various forms of compensation are available to be used, and many of these forms of compensation have specific benefits and drawbacks depending on a company's circumstances. The specific compensation alternatives students should consider are as follows:

Internal Revenue Code Section 162(m) disallows a deduction for salary greater than $1 million. To the extent that students suggest that a company either increase or keep the CEO's salary greater than $1 million, there should be a rationale given for this decision. It...

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