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Ceo Risk Taking Incentives And Relative Performance Evaluation
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Book Synopsis CEO Risk-Taking Incentives and Relative Performance Evaluation by : Dirk E. Black
Download or read book CEO Risk-Taking Incentives and Relative Performance Evaluation written by Dirk E. Black and published by . This book was released on 2018 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines how changes in CEO risk-taking incentives are associated with changes in the use of relative performance evaluation (RPE) in CEO contracts. Using a shock to the accounting for executive stock options (FAS 123R), I confirm that risk-taking incentives and option grants declined following FAS 123R using a within-firm design, but not a within-CEO-firm design. Decreased risk-taking incentives lead executives to invest in projects with lower systematic risk and can result in reduced incentives to hedge exposure to systematic risk in CEO compensation contracts via RPE. However, CEO relative risk-aversion increases with decreases in risk-taking incentives, potentially increasing incentives to protect CEO wealth from systematic performance via RPE. Testing these competing predictions, I find modest evidence consistent with reduced RPE surrounding FAS 123R, suggesting that when CEO risk-taking incentives are reduced, so are incentives to shield CEO pay from systematic performance.
Book Synopsis The Moderating Effect of Relative Performance Evaluation on the Risk Incentive Properties of Executives' Equity Portfolios by : Hyungshin Park
Download or read book The Moderating Effect of Relative Performance Evaluation on the Risk Incentive Properties of Executives' Equity Portfolios written by Hyungshin Park and published by . This book was released on 2015 with total page 79 pages. Available in PDF, EPUB and Kindle. Book excerpt: We offer evidence that the use of Relative Performance Evaluation (RPE) in CEOs' incentive contracts influences the effect of risk-taking incentives on both the magnitude and composition of firm risk. We find that when the incentive design lacks RPE features, the incentive portfolio vega motivates CEOs to increase total risk through the systematic component because it can be hedged. In contrast, when the incentive design includes RPE features, CEOs prefer idiosyncratic risk because RPE filters out the systematic component of firm performance. We also document that the use of RPE reinforces the incentive portfolio vega's effect on the total risk.
Book Synopsis Relative Performance Evaluation for Chief Executive Officers by : Robert Gibbons
Download or read book Relative Performance Evaluation for Chief Executive Officers written by Robert Gibbons and published by . This book was released on 1989 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: Measured individual performance often depends on random factors which also affect the performances of other workers in the same firm, industry, or market. In these cases, relative performance evaluation (RPE) can provide incentives while partially insulating workers from the common uncertainty. Basing pay on relative performance, however, generates incentives to sabotage the measured performance of co-workers, to collude with co-workers and shirk, and to apply for jobs with inept co-workers. RPE contracts also are less desirable when the output of co-workers is expensive to measure or in the presence of production externalities, as in the case of team production. The purpose of this paper is to review the benefits and costs of RPE and to test for the presence of RPE in one occupation where the benefits plausibly exceed the costs: chief executive officers (CEOs). In contrast to previous research, our empirical evidence strongly supports the RPE hypothesis-CEO pay revisions and retention probabilities are positively and significantly related to firm performance, but are negatively and significantly related to industry and market performance, ceteris paribus. Our results also suggest that CEO performance is more likely to be evaluated relative to aggregate market movements than relative to industry movements.
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 Essays on managerial incentives by : Konstantinos Tzioumis
Download or read book Essays on managerial incentives written by Konstantinos Tzioumis and published by . This book was released on 2005 with total page 308 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Are Relative Performance Measures in CEO Incentive Contracts Used for Risk Reduction And/or Strategic Interaction by : Dimitris Vrettos
Download or read book Are Relative Performance Measures in CEO Incentive Contracts Used for Risk Reduction And/or Strategic Interaction written by Dimitris Vrettos and published by . This book was released on 2011 with total page 113 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Asymmetry of CEO Compensation and the Role of Relative and Macroeconomic Shocks in Risk Taking Incentives by : Hsin-Hui Chiu
Download or read book Asymmetry of CEO Compensation and the Role of Relative and Macroeconomic Shocks in Risk Taking Incentives written by Hsin-Hui Chiu and published by . This book was released on 2015 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: If managers are risk-averse and compensation schemes are not directly linked to shareholder wealth, incentives to allocate effort to manage effects of relative and macroeconomic shocks may be distorted. In this paper we develop a simple model to identify factors that determine the optimal allocation of effort to manage relative and macroeconomic shocks. We then show how serial correlation in shocks, the relative variance of shocks and the ability of managers to influence the effects of shocks on shareholder wealth determine the optimal allocation of managerial effort. Thereafter, we emphasize how CEO compensation depends on performance variables distinguishing between relative and macroeconomic sources of changes in compensation. In our empirical analysis on the asymmetry of compensation in response to relative and macroeconomic shocks we use CEO's firm-related wealth in a sample of U.S. CEOs during 1993-2012. The empirical results show that macroeconomic fluctuations explain a large part of the variances of compensation and firm-related wealth. We find only weak evidence of asymmetric incentives in these two variables. Thus, if managers are risk-averse, their incentives to reduce the impact of macroeconomic fluctuations are strong and possibly excessive. We conclude that the role of macroeconomic fluctuations and the ability of the CEO to adjust operations in response to these fluctuations should be considered simultaneously when designing individual CEO compensation incentive schemes.
Book Synopsis Passing the Baton by : Richard F. Vancil
Download or read book Passing the Baton written by Richard F. Vancil and published by Harvard Business Review Press. This book was released on 1987 with total page 352 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Relative Performance Evaluation and Earnings Management by : Jakob Infuehr
Download or read book Relative Performance Evaluation and Earnings Management written by Jakob Infuehr and published by . This book was released on 2018 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: The conventional view suggests that firms should benchmark CEO compensation to absorb systemic risk and to more efficiently incentivize executives to work hard. Yet, empirical research has found only a modest use of benchmarking in compensation contracts. In this paper, I highlight one weakness of relative performance evaluation. When earnings management is possible, benchmarking creates stronger incentives for misreporting performance measures compared to competitor-independent pay. The optimal contract will depend less on a correlated benchmark if it is easier for the manager to misreport performance. This result may explain why benchmarking CEO compensation is not as widespread in the business world as previously predicted.
Book Synopsis CEOS' Outside Employment Opportunities and the Lack of Relative Performance Evaluation in Compensation Contracts by : Shivaram Rajgopal
Download or read book CEOS' Outside Employment Opportunities and the Lack of Relative Performance Evaluation in Compensation Contracts written by Shivaram Rajgopal and published by . This book was released on 2005 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: Although agency theory suggests that firms ought to index executive compensation to remove market-wide effects (i.e., RPE), there is little evidence to support this theory. Oyer (2004) posits that absence of RPE is optimal if the CEO's reservation wages from outside employment opportunities rise and fall with the economy's fortunes. We directly test and find support for Oyer's (2004) theory. We argue that the CEO's outside opportunities depend on his talent proxied by the CEO's financial press visibility and his firm's recent industry-adjusted ROA. Our results are robust to alternate explanations such as managerial skimming, oligopoly and asymmetric benchmarking.
Book Synopsis Relative Performance Evaluation in CEO Compensation by : David De Angelis
Download or read book Relative Performance Evaluation in CEO Compensation written by David De Angelis and published by . This book was released on 2019 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: Relative performance evaluation (RPE) in CEO compensation can be used as a commitment device to pay CEOs for their revealed relative talent. We find evidence consistent with the talent-retention hypothesis, using two different approaches. First, we examine the RPE terms in compensation contracts and document features that are consistent with retention motives. Second, using a novel empirical specification for detecting RPE, we find RPE is less prevalent when CEO talent is less transferrable: among specialist CEOs, founder CEOs, and retirement-age CEOs, as well as in industries and states where the market for CEO talent is more restrictive.
Book Synopsis CEO Power and Relative Performance Evaluation by : Shane S. Dikolli
Download or read book CEO Power and Relative Performance Evaluation written by Shane S. Dikolli and published by . This book was released on 2016 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: We model relative performance evaluation (RPE) when a Chief Executive Officer (CEO) has the power to opportunistically influence the design of RPE by choosing the weight on an index-based peer group or by customizing the selection of peers comprising a peer group. A powerful CEO compares the benefits of reducing common risk affecting his compensation with the benefits of receiving a higher bonus by economizing on expected peer-group performance. The Board of Directors (BoD) is less likely to use RPE if a powerful CEO can influence RPE design. Our analytical model yields hypotheses predicting that powerful CEOs choose to reduce common risk only partially and that BoDs choose to not implement RPE if expected peer performance is sufficiently high. Our model has further empirical implications in (1) providing new interpretations of tests for detecting strong-form and weak-form RPE in the presence of powerful CEOs, and (2) suggesting a new empirical measure of CEO power with a focus on the delegation of RPE decision rights.
Book Synopsis Responsible Executive Compensation for a New Era of Accountability by : Peter T. Chingos
Download or read book Responsible Executive Compensation for a New Era of Accountability written by Peter T. Chingos and published by John Wiley & Sons. This book was released on 2004-04-12 with total page 322 pages. Available in PDF, EPUB and Kindle. Book excerpt: A definitive road map to help companies assess and refine their executive reward strategies. Responsible pay has become inextricably linked with corporate governance and long-term shareholder value creation. Responsible Executive Compensation for a New Era of Accountability shows you how to revamp your executive compensation programs to drive shareholder value creation while adhering to the high standards of the new corporate governance environment. Packed with case studies, diagnostics, and contributions from world-renowned experts in executive compensation, this vital resource offers a comprehensive overview of the critical issues affecting executive compensation practice and theory during this new era. Order your copy today!
Book Synopsis The Handbook of the Economics of Corporate Governance by : Benjamin Hermalin
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
Book Synopsis Relative Performance Evaluation for Chief Executive Officers by : Kevin J. Murphy
Download or read book Relative Performance Evaluation for Chief Executive Officers written by Kevin J. Murphy and published by . This book was released on 1991 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Measured individual performance often depends on random factors which also affect the performances of other workers in the same firm, industry, or market. In these cases, relative performance evaluation (RPE) can provide incentives while partially insulating workers from the common uncertainty. Basing pay on relative performance, however, generates incentives to sabotage the measured performance of co-workers, to collude with co-workers and shirk, and to apply for jobs with inept co-workers. RPE contracts also are less desirable when the output of co-workers is expensive to measure or in the presence of production externalities, as in the case of team production. The purpose of this paper is to review the benefits and costs of RPE and to test for the presence of RPE in one occupation where the benefits plausibly exceed the costs: chief executive officers (CEOs). In contrast to previous research, our empirical evidence strongly supports the RPE hypothesis-CEO pay revisions and retention probabilities are positively and significantly related to firm performance, but are negatively and significantly related to industry and market performance, ceteris paribus. Our results also suggest that CEO performance is more likely to be evaluated relative to aggregate market movements than relative to industry movements.
Book Synopsis Globalized Water by : Graciela Schneier-Madanes
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.
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 2012-08-02 with total page 428 pages. Available in PDF, EPUB and Kindle. Book excerpt: The scholarly literature on executive compensation is vast. As such, this literature provides an unparalleled resource for studying the interaction between the setting of incentives (or the attempted setting of incentives) and the behavior that is actually adduced. From this literature, there are several reasons for believing that one can set incentives in executive compensation with a high rate of success in guiding CEO behavior, and one might expect CEO compensation to be a textbook example of the successful use of incentives. Also, as executive compensation has been studied intensively in the academic literature, we might also expect the success of incentive compensation to be well-documented. Historically, however, this has been very far from the case. In Too Much Is Not Enough, Robert W. Kolb studies the performance of incentives in executive compensation across many dimensions of CEO performance. The book begins with an overview of incentives and unintended consequences. Then it focuses on the theory of incentives as applied to compensation generally, and as applied to executive compensation particularly. Subsequent chapters explore different facets of executive compensation and assess the evidence on how well incentive compensation performs in each arena. The book concludes with a final chapter that provides an overall assessment of the value of incentives in guiding executive behavior. In it, Kolb argues that incentive compensation for executives is so problematic and so prone to error that the social value of giving huge incentive compensation packages is likely to be negative on balance. In focusing on incentives, the book provides a much sought-after resource, for while there are a number of books on executive compensation, none focuses specifically on incentives. Given the recent fervor over executive compensation, this unique but logical perspective will garner much interest. And while the literature being considered and evaluated is technical, the book is written in a non-mathematical way accessible to any college-educated reader.
