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Anticipated Incentives In Ceo Compensation Contracts
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Book Synopsis Anticipated Incentives in CEO Compensation Contracts by : Ian Michael Tarrant
Download or read book Anticipated Incentives in CEO Compensation Contracts written by Ian Michael Tarrant and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Extant empirical research has largely overlooked the incentives that arise when CEOs can reasonably anticipate future awards and liquidations of equity-based compensation. In this study, I use past patterns of stock and option awards, exercises, and sales to estimate future awards, exercises, and sales, which I argue are anticipated by the CEO and act as an important incentive. The anticipated incentives I estimate are large in magnitude and provide information that is incremental to the CEOs existing portfolio of equity incentives disclosed in the annual proxy statement. In empirical analyses, I find that anticipated incentives are negatively (positively) associated with proxies for real (accruals-based) earnings management even in the presence of existing measures of CEO incentives. My findings suggest that the ex ante measure of anticipated incentives introduced in this study captures a new source of information that is decision-relevant for CEOs but currently omitted from existing empirical proxies.
Book Synopsis A Principled Approach to CEO Compensation and Contracts by : Michael Dennis Graham
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 2019-01-09 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.
Book Synopsis Corporate Social Performances Incentives in CEO Compensation Contracts by : Rozhin Yousefvand-Mansouri
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." --
Book Synopsis Too Much Is Not Enough by : Robert W. Kolb
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 2012-08-23 with total page 231 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.
Book Synopsis Executive Compensation and Earnings Management Under Moral Hazard by : Bo Sun
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.
Book Synopsis Pay Without Performance by : Lucian A. Bebchuk
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.
Book Synopsis Incentives and Innovation by : Bill B. Francis
Download or read book Incentives and Innovation written by Bill B. Francis and published by . This book was released on 2011 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Executive Compensation, Incentives, and Risk by : Dirk Jenter
Download or read book Executive Compensation, Incentives, and Risk written by Dirk Jenter and published by . This book was released on 2002 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the link between equity-based compensation and created incentives by (1) deriving a measure of incentives suitable for both linear and non-linear compensation contracts, (2) analyzing the effect of risk on incentives, and (3) clarifying the role of the agent's private trading decisions in incentive creation. With option-based compensation contracts, the average pay-forperformance sensitivity is not an adequate measure of ex-ante incentives. Pay-for-performance covaries negatively with marginal utility and hence overstates the created incentives. Second, more noise in the performance measure implies that the manager is less certain about the effect of effort on performance, which in turn makes her less willing to exert effort. Finally, the private trading decisions by the manager have first-order effects on incentives. By reducing her holdings of the market asset, the manager achieves an effect similar to "indexing" the stock or option grant, making explicit indexation of the contract redundant. Keywords: executive compensation, equity-based compensation, created incentives.
Book Synopsis Market Structure, Compensation and Incentives by : Marc Colin Charles Chopin
Download or read book Market Structure, Compensation and Incentives written by Marc Colin Charles Chopin and published by . This book was released on 1991 with total page 334 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Market-Indexed Executive Compensation by : Gerald T. Garvey
Download or read book Market-Indexed Executive Compensation written by Gerald T. Garvey and published by . This book was released on 2003 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: Academics have long argued that incentive contracts for executives should be indexed to remove the influence of exogenous market factors. Little evidence has been found that firms engage in such practices, also termed quot;relative performance evaluationquot;. We argue that firms may not gain much by removing market risks from executive compensation because (i) the market provides compensation for bearing systematic risk via the market risk premium and therefore the executive desires positive exposure to such risks, and (ii) the executive can, in principle, adjust her personal portfolio to offset any unwanted market risk imposed by her compensation contract. A testable implication is that stock-based performance incentives will be weaker when idiosyncratic risks are large but that market risks will have little effect. The data tend to support this hypothesis. In the full sample of CEO compensation from ExecuComp, stock-based incentives are strictly decreasing in firm-specific risk. Market-specific risks, however, are insignificantly related to incentives. The story changes somewhat when we distinguish between younger and older CEOs. Our theory is arguably less applicable to younger CEOs who have more non-tradeable exposure to systematic risk through their human capital. Consistent with this argument, we find that market risks have a negative effect on stock-based incentive pay for younger CEOs, while they don't for older CEOs. This in turn implies that the traditional argument for indexation is indeed valid for younger CEOs, and we find some evidence in favor of this proposition. Specifically, we find evidence of indexation for younger but not for older CEOs. Even for younger CEOs, however, the effect is far too weak to remove the effects of market risk. This is consistent with our finding that market risk reduces pay-performance for young CEOs, but leaves the question of why there is not more indexing for such executives.
Book Synopsis Optimal Incentive Contracts in the Presence of Career Concerns by : Robert Gibbons
Download or read book Optimal Incentive Contracts in the Presence of Career Concerns written by Robert Gibbons and published by . This book was released on 1991 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies career concerns -- concerns about the effects of current performance on future compensation -- and describes how optimal incentive contracts are affected when career concerns are taken into account. Career concerns arise frequently: they occur whenever the market uses a worker's current output to update its belief about the worker's ability and competition then forces future wages (or wage contracts) to reflect these updated beliefs. Career concerns are stronger when a worker is further from retirement, because a longer prospective career increases the return to changing the market's belief. In the presence of career concerns, the optimal compensation contract optimizes total incentives -- the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract. Thus, the explicit incentives from the optimal compensation contract should be strongest when a worker is close to retirement. We find empirical support for this prediction in the relation between chief-executive compensation and stock-market performance.
Book Synopsis Contracts and the Market for Executives by : Sherwin Rosen
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.
Book Synopsis Executive Compensation as an Agency Problem by : Lucian A. Bebchuk
Download or read book Executive Compensation as an Agency Problem written by Lucian A. Bebchuk and published by . This book was released on 2003 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides an overview of the main theoretical elements and empirical underpinnings of a managerial power' approach to executive compensation. Under this approach, the design of executive compensation is viewed not only as an instrument for addressing the agency problem between managers and shareholders but also as part of the agency problem itself. Boards of publicly traded companies with dispersed ownership, we argue, cannot be expected to bargain at arm's length with managers. As a result, managers wield substantial influence over their own pay arrangements, and they have an interest in reducing the saliency of the amount of their pay and the extent to which that pay is de-coupled from managers' performance. We show that the managerial power approach can explain many features of the executive compensation landscape, including ones that many researchers have long viewed as puzzling. Among other things, we discuss option plan design, stealth compensation, executive loans, payments to departing executives, retirement benefits, the use of compensation consultants, and the observed relationship between CEO power and pay. We also explain how managerial influence might lead to substantially inefficient arrangements that produce weak or even perverse incentives.
Book Synopsis Executive Compensation Best Practices by : Frederick D. Lipman
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.
Book Synopsis Essays on the Design and Consequences of Relative Performance Evaluation Incentives in CEO Compensation Contracts by : Timothy Michael Keune
Download or read book Essays on the Design and Consequences of Relative Performance Evaluation Incentives in CEO Compensation Contracts written by Timothy Michael Keune and published by . This book was released on 2010 with total page 178 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis CEO Optimism and Incentive Compensation by : Clemens A. Otto
Download or read book CEO Optimism and Incentive Compensation written by Clemens A. Otto and published by . This book was released on 2014 with total page 93 pages. Available in PDF, EPUB and Kindle. Book excerpt: I study the effect of chief executive officer (CEO) optimism on CEO compensation. Using data on compensation in US firms, I provide evidence that CEOs whose option exercise behavior and earnings forecasts are indicative of optimistic beliefs receive smaller stock option grants, fewer bonus payments, and less total compensation than their peers. These findings add to our understanding of the interplay between managerial biases and remuneration and show how sophisticated principals can take advantage of optimistic agents by appropriately adjusting their compensation contracts.
Book Synopsis The Diminishing Returns of Incentive Pay in Executive Compensation Contracts by : Andrew Lund
Download or read book The Diminishing Returns of Incentive Pay in Executive Compensation Contracts written by Andrew Lund and published by . This book was released on 2014 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: For the past 30 years, the conventional wisdom has been that executive compensation packages should include very large proportions of incentive pay. This incentive pay orthodoxy has become so firmly entrenched that the current debates about executive compensation simply take it as a given. We argue, however, that in light of evolving corporate governance mechanisms, the marginal net benefit of incentive-laden pay packages is both smaller than appreciated and getting smaller over time. As a result, the assumption that higher proportions of incentive pay are beneficial is no longer warranted. A number of corporate governance mechanisms have evolved to duplicate incentive pay's positive incentive effects, thereby reducing its marginal benefit. Most significantly, a newly robust CEO labor market has made incentive pay largely redundant in focusing CEO attention on stock prices. In addition, while the marginal benefit of incentive pay has been overstated, its costs are significant and often overlooked. As a result, we believe that the net overall effect of incentive pay on shareholder wealth is now either minimally positive or even negative. We also argue that, given the strength of the corporate governance mechanisms discussed in the Article, attempts to improve company performance by “fixing” incentive pay structures are unlikely to succeed. Nevertheless, the trend towards greater and greater incentive pay continues unabated. This resiliency, however, is not surprising even in a competitive market. In the past, the incentive pay orthodoxy was justified because the corporate governance mechanisms were not as robust. Incentive-laden contracts therefore became the key marker for “good governance” in the compensation context. In addition to the stickiness of that status quo, incentive pay's staying power has been supported by private interests who benefit from the conventional view of its efficacy. As a result of the incentive pay orthodoxy, executives receive greater pay, boards bear less responsibility for that pay, and compensation consultants and experts garner more attention. On the other hand, there is no constituency with a significant incentive to soberly assess the benefit of incentive pay that is not afflicted with informational disadvantages or collective action problems.
