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Author: Raj Aggarwal Publisher: ISBN: Category : Executives Languages : en Pages : 40
Book Description
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.
Author: Raj Aggarwal Publisher: ISBN: Category : Executives Languages : en Pages : 40
Book Description
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.
Author: Julie Wulf Publisher: ISBN: Category : Languages : en Pages : 42
Book Description
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.
Author: Narayanan Subramanian Publisher: ISBN: Category : Languages : en Pages : 46
Book Description
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.
Author: Isabell M. Welpe Publisher: Springer ISBN: 3319097857 Category : Business & Economics Languages : en Pages : 493
Book Description
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.
Author: Lucian A. Bebchuk Publisher: Harvard University Press ISBN: 9780674020634 Category : Business & Economics Languages : en Pages : 308
Book Description
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.
Author: Antonio Camara Publisher: ISBN: Category : Languages : en Pages :
Book Description
Since 1995, more than 50 percent of the firms in the FTSE-100 have granted rewards to their senior executives, the payoffs of which are contingent on the firm's stock return relative to a bench mark return over a given period (hereafter, relative performance incentives). This paper investigates and derives closed-form solutions for a class of relative performance incentives that have a positive payoff if, in addition to the traditional contingencies, the firm's stock return is higher than the market return times a threshold. Results suggest that UK firms, in practice, when relative performance incentives (RPI's) substitute absolute performance incentives (API's) tend to (i) decrease the cost of their compensation packages; (ii) undertake more risky capital-investment projects; and (iii) avoid providing so high-powered incentives to increase shareholder wealth.
Author: Raj Aggarwal
Author: Raj Aggarwal
Author: Rajesh K. Aggarwal
Author: Julie Wulf
Author: Narayanan Subramanian
Author: Isabell M. Welpe
Author: Elif Şişli-Ciamarra
Author: Lucian A. Bebchuk
Author: Antonio Camara
Author: Yoshio Yanadori
Author: Kenneth J. McLaughlin