Download or read book Performance Incentives Within Firms written by Raj Aggarwal and published by . This book was released on 1999 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical research on executive compensation has focused almost exclusively on the incentives provided to chief executive officers. However, firms are run by teams of managers, and a theory of the firm should also explain the distribution of incentives and responsibilities for other members of the top management team. An extension of the standard principal-agent model to allow for multiple signals of effort predicts that executives who have other, more precise signals of their effort than firm performance will have compensation that is less sensitive to the overall performance of the firm. We test this prediction in a comprehensive panel dataset of executives at large corporations by comparing executives with explicit divisional responsibilities to those with broad oversight authority over the firm and to CEOs. Controlling for executive fixed effects and the level of compensation, we find that CEOs have pay-performance incentives that are $5.85 per thousand dollar increase in shareholder wealth higher than the pay-performance incentives of executives with divisional responsibility. Executives with oversight authority have pay-performance incentives that are $1.26 per thousand higher than those of executives with divisional responsibility. The aggregate pay-performance sensitivity of the top management team is quite substantial, at $30.24 per thousand dollar increase in shareholder wealth for the median firm in our sample. Our work sheds light on the alignment of responsibility and incentives within firms and suggests that the principal-agent model provides an appropriate characterization of the internal organization of the firm.

Download or read book Performance Incentives Within Firms written by Rajesh K. Aggarwal and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that top management incentives vary by responsibility. For oversight executives, pay-performance incentives are $1.22 per thousand dollar increase in shareholder wealth higher than for divisional executives. For CEOs, incentives are $5.65 higher than for divisional executives. Incentives for the median top management team are substantial at $32.32. CEOs account for 42 to 58 percent of aggregate team incentives. For divisional executives, the pay-performance sensitivity is positive and increasing in the precision of divisional performance and the pay-performance sensitivity is decreasing in the precision of divisional performance. These results support principal-agent models with multiple signals of managerial effort.

Download or read book Authority Risk and Performance Incentives written by Julie Wulf and published by . This book was released on 2006 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: I show that performance incentives vary by decision-making authority of division managers. For division managers with broader authority, i.e., those designated as corporate officers, both the sensitivity of pay to quot;globalquot; performance measures and the relative importance of quot;globalquot; to quot;localquot; measures are larger, relative to non-officers. There is no difference in sensitivity of pay to quot;localquot; measures by officer status. These results support theories suggesting that authority over project selection combined with incentives designed to maximize firm performance, as well as induce effort for the division, are important in incentive design for division managers. Consistent with earlier findings, the evidence strongly supports one of the main predictions of the principal-agent model, that is, a negative tradeoff between risk and incentives.

Download or read book Incentives and Performance written by Isabell M. Welpe and published by Springer. This book was released on 2014-11-07 with total page 493 pages. Available in PDF, EPUB and Kindle. Book excerpt: ​This book contributes to the current discussion in society, politics and higher education on innovation capacity and the financial and non-financial incentives for researchers. The expert contributions in the book deal with implementation of incentive systems at higher education institutions in order to foster innovation. On the other hand, the book also discusses the extent to which governance structures from economy can be transferred to universities and how scientific performance can be measured and evaluated. This book is essential for decision-makers in knowledge-intensive organizations and higher-educational institutions dealing with the topic of performance management.

Download or read book Managing through Incentives written by Richard B. McKenzie and published by Oxford University Press. This book was released on 1998-09-24 with total page 348 pages. Available in PDF, EPUB and Kindle. Book excerpt: Incentives are the most powerful tools executives can use to improve worker performance. This is particularly true in today's empowered workplace, where incentives can ensure that workers apply their initiative toward company goals. Now, in this groundbreaking book, Richard McKenzie and Dwight Lee show how to select the right incentives and how to use them for best results. Generously illustrated with examples from business, industry, government, academia, and professional sports, this superb volume offers a comprehensive overview of incentives, both in theory and in practice, providing a wealth of ideas managers can use to get employees to work harder, smarter, and more cooperatively. Much of the book is quite eye-opening. For instance, while McKenzie and Lee recognize that money is the prime motivator, they urge managers not to overlook the power of non-monetary incentives, carefully evaluating such motivators as fringe benefits, psychological incentives, education, and training. And they examine a host of other issues, including how to take advantage of executive "overpayment" to increase profits; the limits of piece-rate and other pay-for-performance schemes; finding the right balance between current pay and a more generous pension plan; the value of tough bosses; and hostile takeovers as a form of managerial incentive. How workers are rewarded is often more important than how much they are rewarded, say the authors. The job of good managers is getting the incentives right. Managing Through Incentives shows managers how to apply proven motivators to help any size firm energize the work force, increase its profits, and meet the awesome challenges of today's fiercely competitive global economy.

Download or read book Performance Incentives Performance Pressure and Executive Turnover written by Narayanan Subramanian and published by . This book was released on 2003 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the relationship between the optimal incentive contract and the firm's decision to fire a manager for poor performance. We first derive some theoretical results using a simple principal-agent model, and then examine the empirical evidence on the incidence of forced turnover among CEOs with different compensation contracts. We find that CEOs with steeper compensation contracts (i.e., with greater incentives) are more likely to be fired following poor firm performance. Logit estimations indicate that among poorly performing firms, a CEO receiving incentives at the 60th percentile level are roughly 10% more likely to be fired than a CEO with incentives at the 40th percentile. The results are robust to various performance and incentive measures. We also find that the performance pressure was greater in the latter half (1997-99) of the sample than in the first (1993-96). Increased firing pressure might have been one of the factors contributing to the accounting shenanigans of the late 1990's.

Download or read book Managerial Performance Incentives and Firm Risk During Economic Expansions and Recessions written by Elif Şişli-Ciamarra and published by . This book was released on 2015 with total page 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 High powered Incentives Vs Low powered Incentives written by Sonku Kim and published by . This book was released on 1996 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Firm Boundaries and the Power of Incentives written by Maria Margarida Figueiredo Soares and published by . This book was released on 2012 with total page 77 pages. Available in PDF, EPUB and Kindle. Book excerpt: How do the employment contracts inside the firm differ from the employment contracts between the firm and an outsider? Theory of the firm models don't have a clear prediction about the power of incentives, i.e, the sensitivity of the agent's compensation to performance, inside vs outside the firm. I empirically investigate this question in the Mutual Funds Industry. I build a unique dataset with detailed information gathered on the characteristics of contracts between the funds and investment advisers, both when they are employed by the fund and when they are hired from outside. Using this information I create a measure of power of incentives that takes into account both the explicit incentives, given by the marginal fees paid by the fund to the investment adviser, and the implicit incentives faced by the adviser due to the effect of performance on the probability of termination of the contract. Exploring variation induced by funds that switch organizational type, I find that outsourcing is associated with an increase in the power of incentives. This increase occurs concurrently with the switch in organizational type and is permanent. A decomposition of the measure of power shows that the sensitivity of dismissal to past performance is very important to explain the estimated difference in power. Therefore, even though most models predict that the written contracts are higher powered in the market, I find that the difference in the power of incentives is generated by the implicit incentives.

Download or read book Corporate Social Performances Incentives in CEO Compensation Contracts written by Rozhin Yousefvand-Mansouri and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "This study extends the literature on the relation between executive compensation, Corporate Social Performance (CSP), and Corporate Financial Performance (CFP) by illustrating how the relation between CSP and CFP is informative in setting executive compensation. Given the role of the board of directors (BOD) in setting executive compensation, I discuss the BOD' fiduciary duty in the contexts of corporate social responsibility by referring to American corporate law and explain how the fiduciary duty of the BOD accommodates and does not prevent Corporate Social Responsibility (CSR), even if complying with CSR goes against shareholders' wealth maximization. Moreover, by combining contract theory literature with economics literature, I propose a theoretical framework which illustrates that contracting on CSP is effective only in situations when corporate social performance negatively affects financial performance and that contracting on CSP is inefficient when CSP is positively reflected in CFP. Next, I examine the framework by focusing on employee health and safety aspects of CSR in extractive industries, using the Total Reportable Incident Rate (TRIR) as the measure of CSP. I find that for companies with a TRIR target in their executive compensation, the relation between TRIR and financial performance is significantly lower than for companies without a CSP target. Furthermore, relying on the disclosures provided in companies' annual reports on compliance with safety standards, I measure the degree to which concern about companies' disclosure relates to the negative effect of the costs of compliance or noncompliance with safety standards, and I categorize the companies into those with a low (high) degree of concern about the negative effect of the costs of compliance on financial performance, denoted by FJ CSR companies (FNJ CSR companies) in the text. Consistent with the proposed framework, I find that a lower degree of concern about the negative effect of the costs of compliance on financial performance is associated with a lower likelihood to include a TRIR incentive in the Chief Executive Officer's (CEO) compensation contract. Also, I find that while the changes in safety performance of FJ CSR companies that include safety performance incentives in the compensation contacts of their CEOs does not differ from that of those without such incentives, the likelihood of improving safety performance for the former group is lower than that of the latter group, which is a finding that supports the proposed theoretical framework.In summary, this study suggests that boards of directors (BOD) are concerned about corporate social responsibilities and the negative consequences of not fulfilling those responsibilities. Thus, when the BODs perceive a simultaneous negative CSP-CFP correlation, they provide CSP incentives in CEOs' compensation contracts, encouraging CEOs to take on social responsibilities even though it reduces short-term financial performance." --

Download or read book The Effect of Local Tournament Incentives on Firms Performance Risk Taking Decisions and Financial Reporting Decisions written by Matthew Ma and published by . This book was released on 2019 with total page 71 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study documents the existence of local employment preferences for corporate executives and examines how the compensation of executives' local peers affects their own performance, risk-taking decisions, and financial reporting decisions. We find that external hires of new CEOs (CFOs) are five (eight) times more likely to be from local firms than non-local firms. We also find that local tournament incentives--as proxied by the pay gap between an executive and higher-paid executives in the area--are associated with stronger performance, greater risk taking, and more financial misreporting. We find consistent results using a difference-in-difference analysis that exploits plausibly exogenous variation in local tournament incentives caused by the sudden death of a local CEO. Our findings are consistent with executives taking actions to compete for a promotion to a nearby firm with higher pay. In addition, we find the effect of local tournament incentives is larger when local mobility is greater and executives' local preferences are stronger.

Download or read book Management Team Incentive Dispersion and Firm Performance written by Robert M. Bushman and published by . This book was released on 2016 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent theory suggests that firms incorporate synergistic interrelationships among executives into optimal incentive design (Edmans et al. 2013). We focus on Pay Performance Sensitivities (PPS) and use dispersion in PPS across top executives as a proxy for the incentive design component shaped by an executive team's synergy profile. We model optimal PPS dispersion and use residuals from this model to measure deviations from optimal. We find that firm performance is increasing (decreasing) in the residual when PPS dispersion is too low (too high). We conjecture that deviations from optimal are sustained by adjustment costs, finding that firms only close around 60% of the gap between target and actual PPS dispersion over the subsequent year. Viewing a team's equity grants as a vector, we provide evidence that firms use subsequent equity grants to actively manage PPS dispersion towards optimality. Cross-sectional analysis reveals that the deleterious effect of deviations from optimal is decreasing in the duration of a team's tenure together, and increasing in the importance of effort coordination across team members for firm performance.

Download or read book Investment Dividends Firm Performance and Managerial Incentives written by Mahmoud Agha and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We combine the incentive schemes offered to managers in practice into a single incentive package and construct a governance index to analyze the role of governance and the incentive package in addressing the agency costs of free cash flow. Using US based data, we find empirical evidence that managers in practice do not consume perks but make a tradeoff when they allocate the cash flows of the firm between investment and dividends. In general, managers in practice underinvest and overpay dividends; an increase in their incentive package would retract both investment and dividends toward the optimal levels; hence, firm performance would improve. We also find that governance is used as a control mechanism rather than as a substitute for the incentive package. Principals employ governance to slow down investment and increase dividends when there is a high informational asymmetry between the manager and the investors, and set these variables close to the optimal levels otherwise. Moreover, we find that firms in practice do not use dividends as a substitute for governance. Furthermore, we find monotone relations between investment, firm performance and dividends on the one hand, and governance and the incentive package on the other hand.

Download or read book Understanding High powered Incentives in Organizations written by Shuo Zheng (S.M.) and published by . This book was released on 2018 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: I study how the compensation structure of top managers from US public companies changes in recent years and the effect of these incentives on firm performance. I first explore the trend of executive compensation structure and performance metrics used in executive compensation over the years. I also examine systematic differences across industries and different firm sizes. Then I analyze the relationship between compensation structure and firm performance. My results suggest that a higher level of incentive-based compensation correlates with higher growth in total shareholder return; particularly for small firms, a higher level of incentive-based compensation correlates with significantly higher total asset growth, sales growth and employment growth as well. To explore whether the level of incentive-based compensation has influence on firm performance, I use propensity score matching to reduce selection bias. My results suggest that the level of incentive-based compensation has no significant influence on firm performance.

Download or read book Use of Incentives in Performance Based Logistics Contracting written by Gregory Sanders and published by Rowman & Littlefield. This book was released on 2018-04-19 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditional contracting is primarily transactional, rewarding contractors when deliveries are made or certain process milestones are met. Performance-Based Logistic (PBL) contracting seeks to base contractor incentives on ongoing performance measures to achieve reliability and cost savings. Key to the success of these arrangements are the incentives that align the interests of the customer and the vendor. This report describes the incentives used in PBL contracts, identifies best practices, and provides recommendations for effective incentives going forward. The study team interviewed PBL practitioners including defense-unique contractors, defense-commercial contractors, and experts who are knowledgeable in the government perspective in the United States and abroad. The team supplemented these interviews by analyzing a PBL dataset of U.S. Department of Defense contracts. Of the four identified categories of incentives—time-based, financial, scope, and other—interviews found that time-based incentives stood out for their reliable appeal and relative underuse in the United States.