Performance-Based Long Term Incentive Compensation and Firm Performance

Awarding executives long-term incentive pay based on firm performance is often described as a natural way to improve firm performance. This brief uses an analytical approach to examine that proposed relationship. We first document the prevalence of performance-based long-term incentive (PB LTI) measures and the trends in the relative size of these measures compared to aggregate measures of compensation. We then compare the characteristics and performance of firms that have implemented a PB LTI measure in the past to those that have not. In order to understand the impact of PB LTI awards on firm performance, we separately assess the roles of the existence of the PB LTI measures, the relative size of the measures, and the type of PB LTI measure on firm performance

Compensation Consultants and Executive Pay (CRI 2009-010)

This chapter provides a review of the recent literature on compensation consultants and executive pay. Six major pay consulting firms dominate the market. These firms advise client firms about executive pay and frequently supply other services such as actuarial work. There is some evidence that CEO pay is higher in firms that use compensation consultants. However, the hypothesis that CEO pay is higher in firms whose consultants face potential conflicts of interest, such as cross-selling of other services, is not as empirically robust

Executive Compensation Consultants and CEO Pay

This Article surveys recent empirical studies on the relation between compensation consultants and CEO pay. The economic rationale for using executive compensation consultants is that they supply valuable data, information, and professional expertise to client firms. However, critics argue that the consultant’s independence might be compromised because of conflicts of interest arising from the cross selling of business services or because of the consultant’s desire to obtain repeat business. The emergent empirical evidence suggests that pay consultants are important in explaining executive compensation, although the findings are sometimes mixed and the precise effects of consultants on pay are yet to be fully understood. In addition, this Article provides some new evidence on the correlation between CEO pay and consultants using U.S. and U.K. data. Adopting a slightly different approach to prior studies, I show that there is a positive cross-section correlation between executive pay and compensation consultants. Conditional on the estimation strategy, the existing evidence supports the hypothesis that CEOs of U.K. firms using consultants receive higher pay than those that do not use compensation consultants. There is less evidence that firms facing conflicts of interest, such as supplying other business services, are associated with higher levels of CEO pay. However, the findings may be sensitive to the type of estimation methods employed, and addressing this concern is a challenge for future research. I also find little support for the hypothesis that firms switch consultants as a mechanism of increasing CEO pay. Again, interpreting the data is fraught with difficulties because of selection effects and the possibility of reverse causation. Finally, the recent Dodd-Frank Act significantly upgrades disclosure about executive compensation and compensation advisors. Future research on the efficacy of compensation consultants will undoubtedly take advantage of these new provisions. At present, it is difficult to unambiguously conclude that pay consultants simply promote executive interests at the expense of shareholders, or that pay outcomes and contracts are not optimal

Sharing Ownership via Employee Stock Ownership

Broad-based stock options, Employee ownership, Incentive compensation,

Executive Pay and Firm Performance: Methodological Considerations and Future Directions

This paper is an investigation of the pay-for-performance link in executive compensation. In particular we document main issues in the pay-performance debate and explain practical issues in setting pay as well as data issues including how pay is disclosed and how that has changed over time. We also provide a summary of the state of CEO pay levels and pay mix in 2009 using a sample of over 2,000 companies and describe main data sources for researchers. We also investigate what we believe to be at the root of fundamental confusion in the literature across disciplines – methodological issues. In exploring methodological issues, we focus on empirical specifications, causality, fixed-effects, first- differencing and instrumental variables issues. We then discuss two important but not yet well explored areas; international issues and compensation in nonprofits. We conclude by examining a series of research areas where further work can be done, within and across disciplines

Behavioral and Performance Consequences of U.S. Executive Equity Compensation and Ownership

Logic and some empirical findings suggest that the consequences of the level of executive ownership and the size of stock option grants have non-monotic relations to firm performance. The size of option grants now typical in the U.S. is likely to encourage an excessive level of risk taking. Stock options are not an effective means of increasing executive ownership and are generally less efficient than full-value grants when comparing opportunity cost to the company and initial psychological value to the executive. Implications for research and compensation design are noted.

IWS briefing, Winter 2007 Volume 7 Issue 1

[Excerpt] A newsletter on workplace issues and research from the School of Industrial and Labor Relations at Cornell University

IWS briefing, Summer 2007 Volume 7 Issue 2

[Excerpt] A newsletter on workplace issues and research from the School of Industrial and Labor Relations at Cornell University

WPŁYW PROGRAMÓW MOTYWACYJNYCH NA WYNIKI FINANSOWE BANKÓW

The paper presents ‘employee stock option’ (ESO) plans in selected European countries and in the United States. The purpose of the paper is to show how those programs influence the company’s performance. To prove the outcome of the analysis presented in the paper, the author has analysed the data from a group of six banks from 2009 to 2010. Half of the banks in the group implemented the ESOs. The analysis was divided into two parts, one dealing with the financial result of the company, while the other focused on the manner of implementation of such programs and their influence on the share price of such companies in order to show how the market reacts to the introduction of ESOs. The conclusions are that banks that used ESOs are more profitable and bring higher returns in stock markets.W artykule przedstawiono programy opcji menedżerskich funkcjonujące w wybranych państwach europejskich oraz w Stanach Zjednoczonych. Artykuł ma na celu pokazanie wpływu wdrożonych programów na sytuację ekonomiczną przedsiębiorstw. Celem potwierdzenia wyników przytoczonych w artykule badań dotyczących osiąganych przez przedsiębiorstwa stosujące opcje menedżerskie korzyści ekonomicznych przeprowadzono analizę grupy sześciu banków w latach 2009-2010. Połowę grupy stanowiły banki, które wdrożyły programy opcyjne dla swoich pracowników. Analiza dotyczyła osiągniętych przez banki wyników finansowych oraz oceny banków przez rynek na podstawie kształtujących się w latach 2009-2010 cen akcji. Wnioski wynikające z przeprowadzonego badania pozwalają stwierdzić, że banki stosujące programy motywacyjne oparte na opcjach osiągają lepsze wyniki niż banki, które takich programów nie stosują

The National, 1940

Volume 25https://digitalcommons.nl.edu/yearbooks/1024/thumbnail.jp