Download or read book Search for Optimal CEO Compensation written by Melanie Cao and published by . This book was released on 2013 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Much of the agency literature focuses on effort-inducing while little attention is paid to the participation constraint. Intuitively, it is important to jointly address both for CEOs. This paper achieves this by developing a dynamic search equilibrium model which allows for quitting if a CEO is not satisfied with the incentive contract. The reservation utility is endogenized in equilibrium since the value of the CEO's outside option depends on other firms' contracts. As a result, the equilibrium incentive contract exhibits some new and important features which can explain two long-standing puzzles related to the executive compensation practice. First, the equilibrium pay-to-performance-sensitivity negatively depends on the expected aggregate state and a firm's systematic risk, and positively on the firm's specific risk. The separate effects of firms' systematic and specific risks enable us to reconcile the mixed evidence on the relationship between pay-to-performance sensitivity and a firm's risk. Second, the equilibrium salary and total pay depend on the firm's size, which, in turn, increases with the expected aggregate state. This result provides a plausible explanation to the steadily increased compensation paid to executives in the past three decades. These theoretical predictions are broadly supported by our empirical results. Hence, we conclude that the participation constraint is an important determinant for the executive compensation policy.

Download or read book Optimal CEO Compensation with Search written by Melanie Cao and published by . This book was released on 2013 with total page 71 pages. Available in PDF, EPUB and Kindle. Book excerpt: We integrate an agency problem into search theory to study executive compensation in a market equilibrium. A CEO can choose to stay or quit and search after privately observing an idiosyncratic shock to the firm. The market equilibrium endogenizes CEOs' and firms' outside options and captures contracting externalities. We show that the optimal pay-to-performance ratio is less than one even when the CEO is risk neutral. Moreover, the equilibrium pay-toperformance sensitivity depends positively on a firm's idiosyncratic risk, and negatively on the systematic risk. Our empirical tests using executive compensation data confirm these results.

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 The Complete Guide to Executive Compensation written by Bruce R. Ellig and published by McGraw Hill Professional. This book was released on 2001-11-22 with total page 624 pages. Available in PDF, EPUB and Kindle. Book excerpt: Strategies for gaining a powerful edge in the executive talent wars The competition for executive talent is fierce, making it imperative that executive compensation programs become an integral part of every company's strategic business plan. The Complete Guide to Executive Compensation provides in-depth coverage of current issues and trends in designing and administering executive compensation packages that are strategically, economically, and culturally sound. Renowned compensation and benefit expert Bruce Ellig begins by providing guidance for board members and company executives on defining a company's organization, culture, and business strategy, in order to establish a framework for executive compensation. He then discusses the often difficultbut essentialissues within that framework, including: Pay positioningrelative to the competitive environment Risk profilethe mix of salary, incentive compensation, and benefits Leveragethe relationship between incentive plan payouts and performance Timingthe mix of short- versus long-term incentive programs Incentive plan designobjectives, performance measures, and participation

Download or read book In Search of Excess written by Graef S. Crystal and published by . This book was released on 1999-03 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the 1970's & 1980s, while the pay of American workers had gone nowhere, American CEOs have increased their own pay more than 400%. Throughout American business, CEO pay is alarmingly out of step with company performance & the national economy. Reveals how & why CEO salaries have grown so large through the business careers & compensation histories of the CEOs of many of America's landmark companies. Reveals the maneuvers by which CEOs & their boards of directors have together unlocked CEO pay from company performance & in disguised the true extent of CEO compensation from the company's shareholders.

Download or read book Optimal CEO Incentives and Industry Dynamics written by Dalida Kadyrzhanova and published by . This book was released on 2012 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt:

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 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 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 Letting Go of Norm written by Marc Hodak and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: With executive compensation in the limelight, the search for best practices has devolved into a drive toward common practices as cautious boards gravitate toward a safe norm. Are these trends in compensation structure as good for the shareholders as they are for the consultants who implement them? Until recently there has been little empirical research to answer such a question. This paper explores some of these trends, and derives some conclusions about their value based on examination of detailed data on executive plans for the S&P 500. This paper is not concerned with the reasons that compensation structures look the way they do (e.g., executive greed, board capture, market for talent, etc.), nor is it concerned with the issue of high CEO pay per se. Instead, it looks at how these structures as they are work for or against shareholder value creation. Against this standard the record is decidedly mixed. One key finding is that rewarding managers for (old-fashioned) profit growth produces higher stock price returns than the trend toward rewards based on multiple measures or balanced scorecards. Also, the trend toward adding long-term incentive plans to the compensation mix does not appear to improve long-term performance. Finally, the trend toward granting equity based on past year's performance rather than in annual fixed-value amounts appears to be good for shareholders both because of additional incentives created by performance-based grants as well as the elimination of the perverse incentive of rewarding poor stock price performance with more shares.

Download or read book ESSAYS ON CEO AND EMPLOYEE COMPENSATION written by Ming Ju and published by . This book was released on 2018 with total page 126 pages. Available in PDF, EPUB and Kindle. Book excerpt: With the continued increase in executive compensation and the resulting increase in pay disparity between executives and rank-and-file employees, CEO compensation relative to the average worker pay underscores the popular apprehension related to equity vs. efficiency. This dissertation empirically examines the determinants and consequences of the CEO-worker pay ratio, and the association between acquisitions and CEO compensation. In the first chapter, I show that country-level factors such as national culture, matter in determining the CEO-worker pay ratio across countries. Using global firm-level data from 44 countries for 2002-2015, I show that the CEO-worker pay ratio is associated with national characteristics such as culture and societal equity orientation. Specifically, I find that the CEO-worker pay ratio is positively associated with power distance and masculinity of the national culture, and it is negatively associated with uncertainty avoidance and long-term orientation. This pay ratio also reflects societal equity orientation, measured by income and wealth distribution proxies. This chapter contributes to the existing literature on executive compensation by documenting national culture as an important determinant of CEO-worker pay ratios globally. In the second chapter, I show that the relationship between firm value and the CEO-worker pay ratio exhibits an inverse-U shaped relation, which is consistent with elements of tournament theory, efficient contracting theory, rent extraction theory, and equity fairness theory. This is also consistent with there being an optimal pay ratio, or inflection point, beyond which increases in the pay ratio decrease firm value. I then show that the relationship between the pay ratio and firm performance differs systematically with regard to firm characteristics, i.e., in firms with a greater need for collaboration and information sharing, the optimal ratio is lower. In the final analysis, I show that pay disparity within the executive suite has little effect on firm value, rather it is the pay disparity between the named executive officers and the rank and file that drive my results. This chapter contributes to the existing literature by showing that the relationship between firm value and CEO-worker pay ratio is nonlinear. In the third chapter, I examine the effect of acquisitions, especially international acquisitions on CEO compensation, using firm-level panel data for 1995-2016, covering both international and domestic acquisitions by US firms. I find that acquisitions lead to higher CEO compensation, which can be explained by size premium, complexity premium, and opportunism. I also find that international acquisitions lead to higher CEO compensation than domestic acquisitions, which is consistent with the matching theory, as international acquisitions are larger and more complex to manage. This chapter provides direct empirical evidence on the effect of acquisitions on CEO compensation with a large database based on US firms. This chapter also adds to the literature on the comparison of international acquisition and domestic acquisition in terms of their impact on CEO compensation, which has been lacking in existing work. Overall, this dissertation advances our understanding on the determinants and consequences of the CEO-worker pay ratio, and adds insights to the literature on the implications of international acquisitions and managerial compensation.

Download or read book Optimal CEO Compensation written by Chongwoo Choe and published by . This book was released on 2006 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies optimal managerial contracts in two contracting environments. When contracts can be based on the return from the investment, an optimal contract is interpreted as a combination of base salary, golden parachute and bonus. When the return is not verifiable, two types of optimal contracts are studied: a contract with restricted stock ownership and a contract with stock options. These three types of optimal contracts are shown to be equivalent: they all implement the same outcome and result in the same expected payoff for the manager, implying that the choice of contractual form is irrelevant in the environment studied in this paper. This paper thus suggests directions of research for the relevance of different contractual forms.

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 The Complete Guide to Executive Compensation written by Bruce Ellig and published by McGraw-Hill. This book was released on 2007-06-25 with total page 736 pages. Available in PDF, EPUB and Kindle. Book excerpt: ANSWERS TO EXCESSIVE EXECUTIVE PAY Charges of excessive executive compensation have filled the business press for a number of years, yet few understand why pay plans trigger such results.This desktop reference book is an easy-to-access, invaluable guide to structuring appropriate executive pay plans. Properly used, it will help avoid excessive executive pay resulting from poorly designed plans. Written by renowned compensation expert Bruce Ellig, this book is a must read for the designers, approvers, and recipients of executive compensation, as well as those who write about the subject. Consultants and in-house pay designers will find detailed examples (supplemented with over 400 figures and tables) to trigger their own creativity. Compensation committees and other approvers of executive pay plans will value the definitions and descriptions of various pay plans and the conditions under which they would be appropriate. Executives themselves will find the book useful. Not only in better understanding their own plans, but learning more about other plans, both those they may only have heard about, as well as many that have not yet caught their attention. And those who write about the subject will be able to put their comments in a better perspective.. The Complete Guide to Executive Compensation takes an in-depth look at each of the executive pay elements: salary, executive benefits and incentives (both short and long term). This review also includes the role of the board of directors (and its compensation committee) along with the influence of the major stakeholders (most notably the shareholder). And a complete chapter is devoted to various measurements of executive performance. This book also contains a compendium of selected key information on executive compensation, including laws, Internal Revenue Code sections, IRS revenue rulings, accounting interpretations, and SEC actions. No other book has such a complete resource section. In addition, it includes both a historical review of key developments and a look ahead, as well as a glossary with more than 2,000 definitions.

Download or read book Sticks or Carrots Optimal CEO Compensation when Managers are Loss Averse written by Ingolf Dittmann and published by . This book was released on 2010 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes optimal executive compensation contracts when managers are loss averse. We calibrate a stylized principal-agent model to the observed contracts of 595 CEOs and show that this model can explain observed option holdings and high base salaries remarkably well for a range of parametrizations. We also derive and calibrate the general shape of the optimal contract that is increasing and convex for medium and high outcomes and drops discontinuously to the lowest possible payout for low outcomes. We identify the critical features of the loss-aversion model that render optimal contracts convex.

Download or read book A Closer Look at CEO Compensation Levels of Public Companies in the United States written by Jeremiah Joe Allen and published by . This book was released on 2009 with total page 104 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Price vs Non Price Performance Measures in Optimal CEO Compensation Contracts written by John E. Core and published by . This book was released on 2011 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We empirically examine standard agency predictions about how performance measures are optimally weighted to provide CEO incentives. Consistent with prior empirical research, we document that the relative weight on price and non-price performance measures in CEO cash pay is a decreasing function of the relative variances. Agency theory speaks to the weights in total compensation (annual total pay and changes in the CEO's equity portfolio value), however, and we document that very little of CEOs' total incentives comes from cash pay. We also document that variation in the relative weight on price and non-price performance measures in CEO total compensation is an increasing function of the relative variances. The conflicting results using total compensation indicate that existing findings on cash pay cannot be interpreted as evidence supporting standard agency predictions. Based on our results, we suggest approaches for future research on performance measure use in CEO total compensation.