Paying the top officer in a company with long- term incentive awards is most common in the United States. Figure 3-1 (with data from surveys conducted by Towers Perrin  ) shows the total compensation of CEOs in the United States for 2000 and 2001 as well as CEO compensation in 17 foreign firms in 2001. The figure shows estimates of average CEO pay in firms with at least $500 million in sales. CEO compensation is reported as incentive awards versus base and bonus pay.
Figure 3-1. Levels of 2001 CEO compensation around the world. Compensation is categorized as incentive awards, and base and variable salary.
Several things are worth noting from the figure. First, both the base pay and incentive awards for U.S. companies grew substantially between 2000 and 2001. Total compensation for U.S. CEOs grew 38 percent ”from $1.4 million to $1.9 million. Both base salary and incentive awards grew. Base salaries in the United States have been growing quickly.
The second item to note is that total compensation for U.S. CEOs is much higher than for the CEOs of foreign firms. After the United States, the next highest total compensation figures for CEOs in 2001 were in Argentina and Mexico, which averaged $879,000 and $866,000 respectively. Note that this is less than half of the U.S. CEO compensation. Other notable countries shown are Canada ($787,000), Hong Kong ($736,500), Germany ($455,000), Japan ($508,000), Spain ($430,000), and the United Kingdom ($668,500). Lastly, note that the United States appears to use incentive awards, like stock options, as compensation much more than in other countries . In 2001, 45 percent of total compensation came in the form of incentive awards in the United States. The country with the next highest proportion of incentive pay to total pay is Canada (30 percent). South Korea and Switzerland use no material amounts of incentive awards.
Using stock options can be a powerful way to align the interests of the managers and the shareholders. But is it an effective way? Consider the compensation of Disney CEO Michael Eisner and the value he created at the company. He was given millions of stock options, so if he could add substantial value to Disney, he could cash in for incredible wealth. Consider what he did in the five years starting in 1992. By 1997, Disney was earning three times the profits of 1992. Eisner had added more than $13 billion in value to the firm. The stock price more than doubled from $14.33 to $33.00.  Disney's stockholders benefited greatly from this value creation ”so did Michael Eisner! His annual salary in 1997 was $750,000. He received a $9.9 million bonus. He also cashed in $565 million in stock options, for a total compensation of $575.7 million. 
Unfortunately for Disney shareholders, the story doesn't end there. Over the next four years after 1997, Disney's profits struggled and the stock price suffered. In 2001, Disney lost $158 million, and the stock price ended the year at only $20.72. Eisner received his $1 million salary, but he received no bonuses and did not exercise stock options.  Eisner's pay, and that of the other Disney managers, has been closely tied to the performance of Disney's profits and stock price. These executives received much lower pay when Disney declined. However, the shareholders lost more than half of the value that was created between 1992 and 1997. Yet Eisner got to keep the incredible income he received for generating that wealth, even though much of it disappeared. Most of that wealth came from Disney stock options.
This also brings up another question about motivating managers with performance-based compensation. After managers have exercised options and become rich, how much incentive will more options provide? If a CEO's net worth is a couple of million dollars, options that could earn tens or hundreds of millions of dollars are a strong motivator. But if a CEO has a net worth of hundreds of millions of dollars, how much motivation are those options? At some point, people enjoy taking the time to spend their wealth.