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 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 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 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 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 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 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 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.

Download or read book CEO Pay and Firm Performance written by Paul L. Joskow and published by . This book was released on 1994 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study explores the dynamic structure of the pay-for- performance relationship in CEO compensation and quantifies the effect of introducing a more complex model of firm financial performance on the estimated performance sensitivity of executive pay. The results suggest that current compensation responds to past performance outcomes, but that the effect decays considerably within two years. This contrasts sharply with models of infinitely persistent performance effects implicitly assumed in much of the empirical compensation literature. We find that both accounting and market performance measures influence compensation and that the salary and bonus component of pay as well as total compensation have become more sensitive to firm financial performance over the past two decades. There is no evidence that boards fail to penalize CEOs for poor financial performance or reward them disproportionately well for good performance. Finally, the data suggest that boards may discount extreme performance outcomes -both high and low - relative to performance that lies within some `normal' band in setting compensation.

Download or read book Optimal CEO Compensation and Stock Options written by Arantxa Jarque and published by . This book was released on 2008 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Complete Guide to Executive Compensation written by Bruce R. Ellig and published by McGraw-Hill Companies. This book was released on 2002 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Offering guidance to board members and company executives; this book provides in-depth coverage of current issues and trends in designing and administering executive compensation packages that are strategically; economically; and culturally sound. --

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 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 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 Globalized Water written by Graciela Schneier-Madanes and published by Springer Science & Business. This book was released on 2014-05-01 with total page 303 pages. Available in PDF, EPUB and Kindle. Book excerpt: Globalized Water presents a compilation of voices that forms a unique scientific exploration of contemporary water management models and governance issues. The book describes the water paradox—how a local resource has become a global product—and the implications of this in how we identify challenges and make policy in the water sector. Over the last 20 years, the foundations of local and national water systems have been rocked by a wave of changes. The authors in this book, experts in a wide range of disciplines, address the resulting debates and issues: water as a commodity and patrimony, technological rent, liberalization and privatization, the continuing evolution of water management and policy at the European level, decision making and stakeholder participation, conflict and consensus, and the inevitable growth of counterpowers at the local and international levels, promoted by the advocates of sustainable development. The selected case studies are from Europe (primarily France but also Spain, Germany, the United Kingdom, and Portugal), Latin America (Argentina, Bolivia), the United States, Lebanon, and India. From this diverse collection of comparative perspectives and research methods, Globalized Water seeks to advance interdisciplinary research, contributing to a new and dynamic role for social sciences and governance on water.

Download or read book Accounting Expertise on the Compensation Committee and CEO Compensation written by Steven R. Hawkins and published by . This book was released on 2018 with total page 77 pages. Available in PDF, EPUB and Kindle. Book excerpt: Executive compensation has long been a hot topic for regulators, investors and the business press, usually because of a misalignment of performance and CEO compensation. CEO compensation is an important topic because it can have a major impact on firms' ability to attract and retain talented CEOs. The Dodd-Frank Act, passed in 2010, and resulting updated compensation committee rules have increased the scrutiny of compensation committees as they set and monitor executive pay. Additionally, Hoitash et al. (2012) and Manchiraju et al. (2016) call for firms to include directors with financial or accounting expertise on their compensation committees to improve performance measurement and executive compensation contracting. Using the presence of a certified public accountant (CPA) on the committee to proxy for accounting expertise, I investigate the association between accounting expertise on the compensation committee and several aspects of CEO compensation. I find that the percentage of firms with accounting expertise on the compensation committee has doubled over my sample period. I find evidence that accounting expertise on the compensation committee is associated with increased pay-for-performance sensitivity when performance is measured using stock returns. However, in areas where accounting expertise should be most beneficial, including pay sensitivity to accounting-based measures of performance, and compensation shielding from misclassified negative special items, I find no evidence of a significant impact. This study contributes to the literature on CEO compensation and the literature on corporate boards and is the first large sample study on the association between accounting expertise on the compensation committee and CEO compensation.

Download or read book CEO Compensation and Private Information written by Roman Inderst and published by . This book was released on 2008 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider the joint optimal design of CEOs severance pay and on-the-job pay in a modelin which the CEO has interim private information about the likely success of his strategy. The board faces a tradeoff between reducing the likelihood that the firm forgoes an efficient strategy change and limiting the CEO s informational rents. The optimal truthtelling mech-anism takes a simple form: it consists of fixed severance pay and high-powered, non-linear on-the-job pay, such as a bonus scheme or option grant. Our model makes testable predic-tions linking CEOs severance pay and on-the-job pay to each other as well as to the firm s external business environment, firm size, and corporate governance.