Download or read book On the Valuation and Incentive Effects of Executive Cash Bonus Contracts written by Lionel Martellini and published by . This book was released on 2001 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: Executive compensation packages are often valued in an inconsistent manner: while employee stock options (ESOs) are typically valued ex-ante, i.e., before uncertainties are resolved, cash bonuses are valued ex-post, i.e., by discounting the realized cash grants. Such a lack of consistency can, potentially, distort empirical results. A related, yet mostly overlooked, problem is that when ex-post valuation is used pay-performance measures cannot be well defined. Consistent use of ex-ante valuation for all components of a compensation package would simultaneously resolve both of these problems and provide a natural framework for the analysis of agency problems.In this paper, we perform ex-ante valuation of cash bonus contracts as if the executive's performance were measured by the company stock price, demonstrate how the shape of the bonus contract influences the executive's attitude toward risk, and study the pay-performance sensitivity of such contracts. We commence by demonstrating that a typical executive bonus contract with a linear incentive zone has a payoff structure equivalent to a portfolio of standard and binary European call options so that the ex-ante contract value is given by the linear combination of Black and Scholes call and binary call prices, with the strike prices at the boundary points of the incentive zone. Assuming that a risk neutral executive can choose the level of stock price volatility by selecting a set of projects at origination, we show that bonus contract terms can dramatically affect the executive's risk taking behavior and pay-performance incentives. Our results are extended to bonus contracts with non-linear incentive zones, and performance share contracts with vesting risk. Several testable predictions are made, and venues of future research outlined.

Download or read book An Introduction to Executive Compensation written by Steven Balsam and published by Academic Press. This book was released on 2002 with total page 410 pages. Available in PDF, EPUB and Kindle. Book excerpt: General readers have no idea why people should care about what executives are paid and why they are paid the way they are. That's the reason that The Wall Street Journal, Fortune, Forbes, and other popular and practitioner publications have regular coverage on them. This book not only proposes a reason - executives need incentives in order to maximize firm value (economists call this agency theory) - it also describes the nature and design of executive compensation practices. Those incentives can take the form of benefits (salary, stock options), or prerquisites (reflecting the status of the executive within the organizational culture.

Download or read book Too Much Is Not Enough written by Robert W. Kolb and published by Oxford University Press. This book was released on 2012-08-02 with total page 428 pages. Available in PDF, EPUB and Kindle. Book excerpt: The scholarly literature on executive compensation is vast. As such, this literature provides an unparalleled resource for studying the interaction between the setting of incentives (or the attempted setting of incentives) and the behavior that is actually adduced. From this literature, there are several reasons for believing that one can set incentives in executive compensation with a high rate of success in guiding CEO behavior, and one might expect CEO compensation to be a textbook example of the successful use of incentives. Also, as executive compensation has been studied intensively in the academic literature, we might also expect the success of incentive compensation to be well-documented. Historically, however, this has been very far from the case. In Too Much Is Not Enough, Robert W. Kolb studies the performance of incentives in executive compensation across many dimensions of CEO performance. The book begins with an overview of incentives and unintended consequences. Then it focuses on the theory of incentives as applied to compensation generally, and as applied to executive compensation particularly. Subsequent chapters explore different facets of executive compensation and assess the evidence on how well incentive compensation performs in each arena. The book concludes with a final chapter that provides an overall assessment of the value of incentives in guiding executive behavior. In it, Kolb argues that incentive compensation for executives is so problematic and so prone to error that the social value of giving huge incentive compensation packages is likely to be negative on balance. In focusing on incentives, the book provides a much sought-after resource, for while there are a number of books on executive compensation, none focuses specifically on incentives. Given the recent fervor over executive compensation, this unique but logical perspective will garner much interest. And while the literature being considered and evaluated is technical, the book is written in a non-mathematical way accessible to any college-educated reader.

Download or read book Advances in Quantitative Analysis of Finance and Accounting written by Cheng F. Lee and published by World Scientific. This book was released on 2006 with total page 376 pages. Available in PDF, EPUB and Kindle. Book excerpt: An annual publication to disseminate developments in the quantitative analysis of finance and accounting. This publication is a forum for statistical and quantitative analyses of issues in finance and accounting as well as applications of quantitative methods to problems in financial management, financial accounting, and business management.

Download or read book The New Standards written by Richard N Ericson and published by John Wiley & Sons. This book was released on 2010-05-20 with total page 336 pages. Available in PDF, EPUB and Kindle. Book excerpt: Make the most of the new standards Every year companies spend millions of dollars on executive incentives. All too often, however, these programs provide a very weak link between pay and performance, with executives potentially rewarded as much for bad decisions as they are for good ones. Packed with examples, The New Standards insightfully discusses: How to link pay with business results that create long-term value Why incentive structures can discourage management from reasonable risk-taking, in some cases, and can enocourage imprudent risks in others The full range of inputs that should guide proper incentive policy Why performance measures must reflect both the quality and quantity of earnings Risk, executive behavior, and the cost of capital How to use valuation criteria when choosing metrics The pros and cons of common approaches to stock-based incentive pay Written by noted compensation expert Richard Ericson, this innovative book is a must-read for directors and management concerned with executive compensation design or financial performance measurement and forecasting. Get the guidance and concrete solutions you need to thoroughly reexamine your executive compensation policies and practices with the principles and financial maxims found in The New Standards.

Download or read book A Principled Approach to CEO Compensation and Contracts written by Michael Dennis Graham and published by Lulu.com. This book was released on 2013-03-11 with total page 354 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this book we make the case for the genesis of the problem being that many CEOs are not operating under a "fair and reasonable value exchange" with the organization that they work for, and that there are very clear reasons why that is the case. We know you will gain insight from this book finding new ways to view, consider, and reframe your approach to CEO (and other executive) employment relationships consisting of compensation programs and contracts using the all-important concept of value exchange. This book reveals a Principled Approached developed by consultants of Grahall, LLC, guiding the reader through the use of appropriate tools and well thought out processes, for a uniquely effective result.

Download or read book Research Handbook on Executive Pay written by John S. Beasley and published by Edward Elgar Publishing. This book was released on 2012-01-01 with total page 553 pages. Available in PDF, EPUB and Kindle. Book excerpt: Research on executive compensation has exploded in recent years, and this volume of specially commissioned essays brings the reader up-to-date on all of the latest developments in the field. Leading corporate governance scholars from a range of countries set out their views on four main areas of executive compensation: the history and theory of executive compensation, the structure of executive pay, corporate governance and executive compensation, and international perspectives on executive pay. The authors analyze the two dominant theoretical approaches – managerial power theory and optimal contracting theory – and examine their impact on executive pay levels and the practices of concentrated and dispersed share ownership in corporations. The effectiveness of government regulation of executive pay and international executive pay practices in Australia, the US, Europe, China, India and Japan are also discussed. A timely study of a controversial topic, the Handbook will be an essential resource for students, scholars and practitioners of law, finance, business and accounting.

Download or read book The Handbook of the Economics of Corporate Governance written by Benjamin Hermalin and published by Elsevier. This book was released on 2017-09-18 with total page 762 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Handbook of the Economics of Corporate Governance, Volume One, covers all issues important to economists. It is organized around fundamental principles, whereas multidisciplinary books on corporate governance often concentrate on specific topics. Specific topics include Relevant Theory and Methods, Organizational Economic Models as They Pertain to Governance, Managerial Career Concerns, Assessment & Monitoring, and Signal Jamming, The Institutions and Practice of Governance, The Law and Economics of Governance, Takeovers, Buyouts, and the Market for Control, Executive Compensation, Dominant Shareholders, and more. Providing excellent overviews and summaries of extant research, this book presents advanced students in graduate programs with details and perspectives that other books overlook. - Concentrates on underlying principles that change little, even as the empirical literature moves on - Helps readers see corporate governance systems as interrelated or even intertwined external (country-level) and internal (firm-level) forces - Reviews the methodological tools of the field (theory and empirical), the most relevant models, and the field's substantive findings, all of which help point the way forward

Download or read book Effective Executive Compensation written by Michael Dennis GRAHAM and published by AMACOM/American Management Association. This book was released on 2008-04-23 with total page 544 pages. Available in PDF, EPUB and Kindle. Book excerpt: When it comes to creating an executive compensation program, it can feel like there’s little gray area between giving top performers too shiny a golden parachute, with exorbitant perks, and providing the company’s leaders with the incentive they need to continue doing their best. This book gives readers the techniques and understanding they need to design a rewards strategy that will motivate performers while benefiting the entire organization. Taking a careful look at the complicated state of executive rewards, this no-nonsense, practical guide provides readers with a complete methodology for motivating management to accomplish critical business goals. Eschewing a one-size-fits-all approach, the book uses case studies and examples to illustrate what factors should be considered—including environment, key stakeholders, people strategy, business strategy, and organizational capabilities—when designing a program that will benefit both their company and the people who fuel its success.

Download or read book Executive Compensation and Firm Performance written by Bonnie R. Rabin and published by . This book was released on 1986 with total page 240 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Pay Without Performance written by Lucian A. Bebchuk and published by Harvard University Press. This book was released on 2004 with total page 308 pages. Available in PDF, EPUB and Kindle. Book excerpt: The company is under-performing, its share price is trailing, and the CEO gets...a multi-million-dollar raise. This story is familiar, for good reason: as this book clearly demonstrates, structural flaws in corporate governance have produced widespread distortions in executive pay. Pay without Performance presents a disconcerting portrait of managers' influence over their own pay--and of a governance system that must fundamentally change if firms are to be managed in the interest of shareholders. Lucian Bebchuk and Jesse Fried demonstrate that corporate boards have persistently failed to negotiate at arm's length with the executives they are meant to oversee. They give a richly detailed account of how pay practices--from option plans to retirement benefits--have decoupled compensation from performance and have camouflaged both the amount and performance-insensitivity of pay. Executives' unwonted influence over their compensation has hurt shareholders by increasing pay levels and, even more importantly, by leading to practices that dilute and distort managers' incentives. This book identifies basic problems with our current reliance on boards as guardians of shareholder interests. And the solution, the authors argue, is not merely to make these boards more independent of executives as recent reforms attempt to do. Rather, boards should also be made more dependent on shareholders by eliminating the arrangements that entrench directors and insulate them from their shareholders. A powerful critique of executive compensation and corporate governance, Pay without Performance points the way to restoring corporate integrity and improving corporate performance.

Download or read book Pay for Results written by Mercer, LLC and published by John Wiley & Sons. This book was released on 2009-03-17 with total page 288 pages. Available in PDF, EPUB and Kindle. Book excerpt: The numerous incentive approaches and combinations and their implications can be dizzying even to the compensation professional. Pay for Results provides a road map for developing and implementing executive incentives that drive business needs and strategy. It is filled with specific analytic tools, including tables, exhibits, forms, checklists. In addition, it uncovers myths in performance measurement strategy and design. Timely and thorough, this book expertly shows businesses how to drive their specific needs and strategy. Human resources and compensation officers will discover how to apply performance metrics that align with shareholder investment.

Download or read book Executive Compensation Best Practices written by Frederick D. Lipman and published by John Wiley & Sons. This book was released on 2008-06-27 with total page 336 pages. Available in PDF, EPUB and Kindle. Book excerpt: Executive Compensation Best Practices demystifies the topic of executive compensation, with a hands-on guide providing comprehensive compensation guidance for all members of the board. Essential reading for board members, CEOs, and senior human resources leaders from companies of every size, this book is the most authoritative reference on executive compensation.

Download or read book Executive Compensation and Earnings Management Under Moral Hazard written by Bo Sun and published by DIANE Publishing. This book was released on 2010-08 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Analyzes executive compensation in a setting where managers may take a costly action to manipulate corporate performance, and whether managers do so is stochastic. Examines how the opportunity to manipulate affects the optimal pay contract, and establishes necessary and sufficient conditions under which earnings management occurs. The author¿s model provides a set of implications on the role earnings management plays in driving the time-series and cross-sectional variation of executive compensation. In addition, the model's predictions regarding the changes of earnings management and executive pay in response to corporate governance legislation are consistent with empirical observations. Charts and tables.

Download or read book Contracts and the Market for Executives written by Sherwin Rosen and published by . This book was released on 1990 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper reviews empirical findings on executive compensation in light of marginal productivity and contract theories. The executive labor market performs three functions. First, control must be distributed and assigned among executives. The most talented executives are efficiently assigned to control positions in the largest firms when talent and the marginal product of control are complements. These gains or rents are partially captured in larger earnings. In fact, the elasticity of top executive pay lies within a tight band around .25 among industries, time periods, and countries where it has been estimated. Second, executive contracts must provide incentives for managers to act in the interests of shareholders. Potential loss of reputation, bonding and takeovers probably substitute for direct monetary incentives in this task. Nevertheless, the elasticity of top executive pay with respect to accounting rates of return lie near 1.0. The elasticity with respect to stock market returns is much smaller, though precisely estimated, near 0.1. Differences of opinion remain on whether the market provides enough incentives to align interests between ownership and control. Third, the market must identify new talent and reassign control over careers from older to younger generations. Competition among executives for top positions and the diminishing incentive effect of future rewards with age implies that compensation should increasingly tilt rewards to current performance over the course of a career. Available evidence supports this prediction.

Download or read book The Presence Value and Incentive Properties of Relative Performance Evaluation in Executive Compensation Contracts written by J. Carr Bettis and published by . This book was released on 2014 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using data that includes specific contractual details of Relative Performance Evaluation (RPE) contracts granted to executives for 1,833 firms for the period 1998 to 2012, we develop new methods to characterize RPE awards and measure their value and incentive properties. The frequency in the use of these awards has grown over time with 37% of the firms in our sample granting an RPE award in 2012. When RPE awards are used they are typically granted to the five named executive officers and they represent about 32% of total recipient compensation. Stock is most frequently the instrument conveyed, followed by cash, and options are almost never granted. RPE awards are more likely to be used at firms with diversified business lines, less concentrated industries, greater exposure to systematic risk, larger size, lower M/B, higher dividend yield, fewer insiders on the board, greater institutional ownership, and that engage a compensation consultant. The typical award is a rank-order tournament based on three year stock returns compared to a select group of 13 peers (median) and is paid out with stock. Payout functions typically include regions of concavity, convexity, explicit inelasticity, and implicit inelasticity. The median firm achieves a threshold for at least some payout of stock or cash about 70% of the time and target payout about 50% of the time. In general, RPE grant value differs significantly from the fair market value reported by firms. We find that RPE awards convey to executives the incentive to increase shareholder wealth. RPE awards of stock contingent on either stock or accounting performance and RPE awards of cash contingent on accounting performance convey the incentive to increase firm risk, while RPE cash awards do not. These incentives can be significant in comparison to those conveyed by APE grants with similar attributes.

Download or read book Executive Annual Incentive Plans written by Charles A. Peck and published by . This book was released on 1996 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: