Chief Executive Officer (CEO) – Definition

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Chief Executive Officer (CEO) Definition

A chief executive officer is also known as a CEO refers to a position in a company or an organization that is most senior. A person who holds this title in a company is regarded to be the most senior employee of that particular company. In other words, it is the most top-ranking position in any company structure.

A Little More on What is a CEO

Note that there are also other titles for CEOs. Some companies instead of using the CEO title, they prefer using titles such as managing director, executive or president. How these titles are used vary from one organization to the other and they all represent the most senior position in a company.

Most importantly, the CEO is the leader of any given firm. Therefore, in the case of a company’s success or failure, this is the person who is held responsible for it. In other words, he or she is regarded to be the face of the company who represents it in the outside world. In some companies, the CEO is also a board member, who mostly holds the chairperson’s position.

However, some companies may prefer to have a different person who is not a CEO to be the board‚Äôs chairperson. Also, it is worth noting that the CEO is usually a point of contact between the board of directors and the company’s various departments. The election of the CEO is usually done by the board members and the shareholders of the company.

Generally, the CEO’s roles in various companies vary depending on the overall structure of the company as well as the size of the company. In a relatively small-sized company, the CEO usually has more responsibilities on his shoulders. For instance, all business decisions including lower ones are made by him or her. This includes even a task such as the hiring of staff, a responsibility that rests with the human resource department in large companies.

However, in large companies, the CEOs are only tasked to deal with company’s higher-level strategies, where they have an obligation of ensuring that they direct its general growth. Other tasks in the company are handled by managers in various departments.

Roles and Responsibilities of Chief Executive Officer

Since the roles and responsibilities of a CEO vary from one company to the other, there are set standards in place that define their job description. However, the list below describes the typical duties and responsibilities of a CEO in any given organization:

Acts as a communication link between the company and different entities such as shareholders, Board of Directors, government agencies, and the larger public.

Leads and directs the implementation of the company’s strategies (both short-term and long-term).

The setting of strategic, measurable as well as describable goals

Assess any possible risks directed to the company’s business and ensure that they are well monitored and appropriate measures put in place, to minimize, prevent or eliminate the risks.

Ensures that the company’s vision and mission are created and implemented.

Supervises other company’s executive leaders working under him to ensure that their work is geared towards the company’s overall success. Such executive leaders may include, directors, vice president, assistant directors, etc.

Ensure that there is social responsibility as far as the company is concerned, at any given time the company engages in business.

Ensure that the company is always aware of things such as:

  • Expansion opportunities
  • Competitive market landscape
  • Current Industry developments, among others.

What are the Characteristics of a Typical CEO? 

People do have different personality traits and these traits play a big role in their leadership roles. However, having a degree in the relevant field together with vast knowledge about the company’s industry adds value to your credentials. The following characteristics are essential for any typical CEO:

  • Should be an expert in making deals, communicating as well as managing company activities.
  • Should be naturally outgoing (extroverted) and always eager to sell to the world the name of the company he or she works for.
  • Should have a clear vision with good strategies to the employees he is leading.
  • Should be a good decision-maker, adapt quickly to changes and also forward-looking.

Does Changing a CEO Impact Stock Price?

Generally, the company should anticipate either increase or a drop in the price of its stock when it decides to change its CEO. Where the transition is abrupt, there are more risks involved. What is more important during transition is the capability of the new CEO to either maintain or improve the performance of the company’s stocks in the market.

However, most investors are usually confident with the change, if the incoming CEO happens to have a good experience in the industry and has also been able to build a good name for himself in the industry. If the new CEO is familiar with the challenges the company is facing, the investors will also have confidence in him or her to move the company forward.

Also, a CEO with a good leadership track record, will definitely increase the value of the shareholder value. The good reputation will make shareholders have confidence in the CEO to increase market share, expand into new markets, cutting down the company costs, etc.

Nonetheless, investors should not measure the capabilities of the new CEO using the performance of the stock at the beginning of his or her tenure. There are bound to be changes as the CEO settles down to take full control of the company.

In other words, improvement in stock performance may be realized after some time and not at the beginning. Therefore, there should be no correlation between the performance at the beginning the CEO’s tenure and the future performance.

Is Prior Experience Required for one to Qualify for a CEO Position?

To say the truth, a person who is looking forward to becoming a CEO should ensure that he or she has leadership experience, especially in the company’s industry. Extensive experience is required so that one can be able to help the company navigate and succeed in the industry in which it operates.

Having experience here means that the CEO has knowledge as far as potential risks are concerned and also, the present and future opportunities that can help the company to grow or expand. Where a CEO is expected to manage a multi-billion dollar company with over a thousand employees, then prior senior managerial experience is very crucial.

Why CEOs Salaries are High

The reason why there exist disparity between the salary of the CEO and that of other employees is because of the following:

  • Most companies believe that awarding its CEO a good compensation package is a good incentive for him or her to properly run the company. Other CEOs are awarded a stock grant so that they can personally benefit from what the company will have earned under their management.
  • Also, some CEOs are quite good which makes them indispensable. So, for a company to ensure that it retains this important person and not lose him or her to the competitors, it has to ensure that the CEO is given a competitive salary package including other benefits. This way, it will be able to keep the CEO and continue benefiting from his or her expertise as well as managerial and leadership skills.
  • In addition, apart from salary, some CEO also owns shares in the company and therefore, some of their earnings come from stocks as well as from investment gains.

Other Benefits for CEOs

Apart from the handsome pay that CEOs get, they are also enjoying the following benefits:

  • Financial counseling services as well as tax preparation services both paid by the employer.
  • Most company‚Äôs offer security to their CEOs. They are given personal security and their homes are also monitored for safety purposes.
  • The CEOs are given privilege by the company to choose office space of their choice including fancy furniture which the company is willing to pay for.
  • Most companies provide their CEOs with cars and drivers. Their cars are also provided with privileged parking space.
  • The CEOs of some companies benefit from corporate aircraft which is provided by their employer.
  • Some companies do foot bills for their CEO‚Äôs leisure and social activities such as country club fee reimbursement
  • Lastly, there are retirement benefits for CEOs that are given to him or her during retirement by the employer.

Note that most of the above-mentioned benefits and privileges are usually meant for high-ranking employees only. Also, the compensation varies from one company to the other.

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