Executive Compensation

In the paper we are concerned with a structured approach to the process of design of an executive compensation system in a company which is one of most relevant issues in corporate economics that can have a huge impact on a company, with respect to finances, competitiveness, etc. More specifically, we present a novel application of Atanassov's concept of a Generalized Net (GN) which is a powerful tool for the representation and handling of dynamic discrete event problems and systems. First, to present the problem specifics, a broader Total Reward system is discussed together with the importance of proper structuring of the compensation system for executives to support company's goals, allowing attracting, motivating and retaining managers. The proposed compensation design model starts from incorporating a broad spectrum of benchmarks, expectations and constraints to those already incorporated in the early phase of the design of the executive compensation. In the design and testing phase a significant emphasis is placed on the flexibility and adjustability of the executive compensation package to external factors by testing, dynamically adjusting and stress testing the proposed compensation package already in the design phase. Then, we apply some elements of the theory of Generalized Nets (GNs) to construct the model of executive compensation design using the proposed approach.

This study aims to examine the relationship between audit committee effectiveness and financial reporting quality among family and non-family-owned companies in the Sultanate of Oman. This study uses a panel dataset for 62 companies listed on the Muscat Securities Market for 4 years from 2021 to 2024. The study contributes to its literature by extending previous financial reporting quality with consideration of the Sultanate of Oman business environment where family ownership control is more common. Additionally, this study is based on the difference between family and non-family-owned firms with Type I and Type II agency problems, with differences in ownership and control, this study further contributes to the literature by examining the influences of the audit committee effectiveness on its financial reporting quality, which is expected to be different between family and non-family firms. The empirical results indicate that the association between audit committee effectiveness and its financial reporting quality is positive and significant for both, the full sample as well as the non-family firms. However, this relationship appears to be weaker for family firms.

The purpose of the study is to examine the board structure-related corporate governance practices and then compare those practices to various bank-specific characteristics. The intent is to determine whether there is any difference in board structure across distinct bankspecific characteristics. The study has used parametric test i.e. independent sample t test and ANOVA test to analysis the difference in board structure with respect to bank specific characteristics that include ownership and bank age, bank size, asset quality, ROA and loan to deposit ratio on 40 commercial banks over the sample period of 2001-2019. The study findings indicated significant difference in governance practices based on bank-specific characteristics. Except for bank age, all bank-specific factors induce a significant difference in board size. In addition, all bank-specific factors cause a significant difference in other directorships except total assets. All other corporate governance factors such as board independence, gender diversity, board meetings, board committees and director diligence differ significantly on the basis of all bank specific characteristics. Overall, the authors' findings add fresh and significant insights to the banking literature. The findings also have ramifications for investors and academic researchers, emphasising areas that require significant attention in corporate governance with regard to bank-specific issues.

Non-communicable diseases constitute more than 72% of annual global deaths and are now rightfully receiving increased attention in the global health agenda. However, one of the primary risk factors for non-communicable diseases continues to be neglected: alcohol. Although the alcohol industry uses sophisticated public relations campaigns to maintain this near invisibility within the health agenda, the global health community is also culpable. Global health policy makers do not appreciate the evidence on alcohol, identify and confront interference from the alcohol industry, or prioritise resources, policies, and programmes for alcohol control. According to the International Agency for Research on Cancer, alcohol, like asbestos and tobacco, is a Group 1 carcinogen and can cause multiple forms of cancer, but particularly breast cancer; health risks are associated with drinking at any degree of consumption. WHO's 2018 Global Status Report on Alcohol and Health estimates that, annually, alcohol is responsible for more than 25% of global deaths in people aged 20-39 years and kills more than 3 million people, the population We declare no competing interests.

Pursuant to Article 1(3) of the Turkish Civil Code No. 4721, “the judge, in rendering a decision, shall make use of scientific opinions and judicial precedents”. Nevertheless, in practice, the extent to which judges rely on scientific opinions, and thus scholarly opinions, remains unknown. Yet, determining the degree to which courts make use of
scholarly opinions is of great importance in many respects. With this understanding, the present study examines court decisions based on a dataset prepared through a database that scans judicial decisions. The scholarly opinions cited in these decisions were identified, classified, and evaluated. As a result of the study, it has been determined
that, in the practice of Turkish law, scholarly opinions in an “interpretative” manner are predominantly used, and that the greatest attention is given to scholarly works embodied in books. Nevertheless, it has been observed that the overall rate of reliance on scholarly opinions, insofar as reflected in citations, remains low.

executive compensation and shareholder value for helpful comments and suggestions. Sourafel Girma was kind enough to collect some of the British data and Ulrike Grasshoff and Annett Klein the German data. We are grateful to Gerrnan Sonderforschungsbereich 373 for supporting this research. We are responsible for the contents.

This paper investigates the association between executive compensation and performance. It uniquely utilises a comprehensive set of corporate governance mechanisms within a three‐stage least squares (3SLS) simultaneous equation framework. Results based on estimating a conventional single equation model indicate that the executive pay and performance sensitivity is relatively weak, whereas those based on estimating a 3SLS model generally suggest improved executive pay and performance sensitivity. Our findings highlight the need for future research to control for possible simultaneous interdependencies when estimating the executive pay and performance link. The findings are generally robust across a raft of econometric models that control for different types of endogeneities, executive pay and performance proxies. Copyright © 2013 John Wiley & Sons, Ltd.

This study examines the impact of executive compensation on the risk-taking behaviour of 148 listed Nigerian firms over the period 2011 to 2025. Grounded in agency theory, managerial power theory, and prospect theory, the study employs a panel regression framework, incorporating fixed effects and random effects estimators with Hausman specification tests to determine the preferred model. Executive compensation is operationalised through total executive pay, cash bonus, and equity-linked remuneration, while risk-taking is measured using return volatility (earnings volatility), asset risk (standard deviation of return on assets), and the leverage-adjusted risk index. Firm-level control variables include firm size, leverage, profitability, growth opportunities, board independence, board size, and ownership structure. Macro-level controls capture industry risk level, industry growth rate, GDP growth rate, inflation rate, and interest rate. Findings reveal that equity-based compensation exerts a statistically significant positive influence on corporate risk-taking, consistent with alignment incentive arguments, while fixed salary compensation is negatively associated with risk appetite. Cash bonuses yield heterogeneous results across model specifications. The results survive a battery of robustness checks including the system GMM estimator, alternative risk proxies, and subsample analyses. These findings carry important implications for corporate governance reform, regulatory policy, and compensation committee design in Nigeria's emerging market context.

Purpose: Examine the effect of executive compensation on the financial performance of listed non-financial firms in Nigeria.   Theoretical framework: The continuous rise in compensation of executives in Nigeria without a corresponding increase in firm performance has continued to generate intense debates and controversial opinions within the corporate environment. Consequently, the need to understand the degree of relationship between executive compensation (measured by salary emolument, bonuses, stock-based compensation and pension) and firm performance (measured by return on equity).   Design/methodology/approach:  A correlational research design was used based on a filtered census population of 63 firms listed on Nigeria’s stock exchange. Secondary data was obtained from the annual financial reports of these firms and analyzed using the generalized methods moments.   Findings: The study found salary emoluments, bonuses and stock-based compensation, as measures of executive compen...

Some commentators argue that increased chief executive officer (CEO) compensation may lead to increased company performance, while others argue that increased CEO compensation does not necessarily lead to increased company performance. These different opinions led to several pay-performance studies to identify and analyse the relationship, if any, between CEO compensation and company performance. The motivation for the present study was to determine whether different performance measurements in a pay-performance study would provide different results, as well as to determine whether certain firms’ performance measurements correlate better to compensation than those of other firms. The main finding of the research was that there is a substantial difference in the correlational relationships identified between CEO compensation and company performance, depending on the performance measurement used. In this study earnings per share reported the strongest positive correlation at 0.89 an...

This paper examines the use and consequences of shared compensation plans (profit sharing, profit related pay, SAYE schemes and company stock option plans) in a sample of UK workplaces and firms in the 1990s. The use of these plans has increased over time, in part in response to government programs. The evidence shows that companies and workplaces adopting shared compensation practices have had higher productivity than other firms, but the effects vary among programs, suggesting that the particulars matter a lot in aligning shared compensation and work place activities. Consistent with incentive theory, the evidence also shows that firms and workplaces with shared compensation practices have a higher incidence of shared decision-making/information sharing practices.

The extant of indigenous literature on bad loans concentrate to analyze the factors that would increase efficient credit allocation by public sector banks in India.. RBI, the Central Bank in India, has mostly tried to promote priority sector lending through various policy steps. However, the list has only become longer. The paper proposes an incentive contract based on information asymmetry model to approach the problem

The analyses below compare the career histories and personal characteristics of the executives in the top ranks of the world's largest and most stable business operations, the Fortune 100, between 1980 and 2001. To our knowledge, there have been no prior studies of contemporary changes in the experience or attributes of executives beyond CEOs. In 2001, these executives were younger, more likely to be women, and less likely to have been Ivy League educated. Most important, they got to the executive suite about four years faster than in 1980 and did so by holding fewer jobs on the way to the top. (In particular, women in 2001 got to their executive jobs faster than their male counterparts --there were no women executives in the Fortune 100 in 1980). Executives in 2001 also spent about five years less in their current organization and were more likely to be hired from the outside than in 1980. Interestingly, the most stable firms -the 26 that were in the Fortune 100 in both periods -had just as much lifetime employment among executives in 2001 as in 1980, although changes in other aspects of careers were similar. Overall, the path to the executive suite and the attributes of the individuals who get there appear to have changed even in the largest and most stable business operations.

The analyses below compare the career histories and personal characteristics of the executives in the top ranks of the world's largest and most stable business operations, the Fortune 100, between 1980 and 2001. To our knowledge, there have been no prior studies of contemporary changes in the experience or attributes of executives beyond CEOs. In 2001, these executives were younger, more likely to be women, and less likely to have been Ivy League educated. Most important, they got to the executive suite about four years faster than in 1980 and did so by holding fewer jobs on the way to the top. (In particular, women in 2001 got to their executive jobs faster than their male counterparts --there were no women executives in the Fortune 100 in 1980). Executives in 2001 also spent about five years less in their current organization and were more likely to be hired from the outside than in 1980. Interestingly, the most stable firms -the 26 that were in the Fortune 100 in both periods -had just as much lifetime employment among executives in 2001 as in 1980, although changes in other aspects of careers were similar. Overall, the path to the executive suite and the attributes of the individuals who get there appear to have changed even in the largest and most stable business operations.

The analyses below compare the career histories and personal characteristics of the executives in the top ranks of the world's largest and most stable business operations, the Fortune 100, between 1980 and 2001. To our knowledge, there have been no prior studies of contemporary changes in the experience or attributes of executives beyond CEOs. In 2001, these executives were younger, more likely to be women, and less likely to have been Ivy League educated. Most important, they got to the executive suite about four years faster than in 1980 and did so by holding fewer jobs on the way to the top. (In particular, women in 2001 got to their executive jobs faster than their male counterparts --there were no women executives in the Fortune 100 in 1980). Executives in 2001 also spent about five years less in their current organization and were more likely to be hired from the outside than in 1980. Interestingly, the most stable firms -the 26 that were in the Fortune 100 in both periods -had just as much lifetime employment among executives in 2001 as in 1980, although changes in other aspects of careers were similar. Overall, the path to the executive suite and the attributes of the individuals who get there appear to have changed even in the largest and most stable business operations.

The analyses below compare the career histories and personal characteristics of the executives in the top ranks of the world's largest and most stable business operations, the Fortune 100, between 1980 and 2001. To our knowledge, there have been no prior studies of contemporary changes in the experience or attributes of executives beyond CEOs. In 2001, these executives were younger, more likely to be women, and less likely to have been Ivy League educated. Most important, they got to the executive suite about four years faster than in 1980 and did so by holding fewer jobs on the way to the top. (In particular, women in 2001 got to their executive jobs faster than their male counterparts --there were no women executives in the Fortune 100 in 1980). Executives in 2001 also spent about five years less in their current organization and were more likely to be hired from the outside than in 1980. Interestingly, the most stable firms -the 26 that were in the Fortune 100 in both periods -had just as much lifetime employment among executives in 2001 as in 1980, although changes in other aspects of careers were similar. Overall, the path to the executive suite and the attributes of the individuals who get there appear to have changed even in the largest and most stable business operations.

The analyses below compare the career histories and personal characteristics of the executives in the top ranks of the world's largest and most stable business operations, the Fortune 100, between 1980 and 2001. To our knowledge, there have been no prior studies of contemporary changes in the experience or attributes of executives beyond CEOs. In 2001, these executives were younger, more likely to be women, and less likely to have been Ivy League educated. Most important, they got to the executive suite about four years faster than in 1980 and did so by holding fewer jobs on the way to the top. (In particular, women in 2001 got to their executive jobs faster than their male counterparts --there were no women executives in the Fortune 100 in 1980). Executives in 2001 also spent about five years less in their current organization and were more likely to be hired from the outside than in 1980. Interestingly, the most stable firms -the 26 that were in the Fortune 100 in both periods -had just as much lifetime employment among executives in 2001 as in 1980, although changes in other aspects of careers were similar. Overall, the path to the executive suite and the attributes of the individuals who get there appear to have changed even in the largest and most stable business operations.

The analyses below compare the career histories and personal characteristics of the executives in the top ranks of the world's largest and most stable business operations, the Fortune 100, between 1980 and 2001. To our knowledge, there have been no prior studies of contemporary changes in the experience or attributes of executives beyond CEOs. In 2001, these executives were younger, more likely to be women, and less likely to have been Ivy League educated. Most important, they got to the executive suite about four years faster than in 1980 and did so by holding fewer jobs on the way to the top. (In particular, women in 2001 got to their executive jobs faster than their male counterparts --there were no women executives in the Fortune 100 in 1980). Executives in 2001 also spent about five years less in their current organization and were more likely to be hired from the outside than in 1980. Interestingly, the most stable firms the 26 that were in the Fortune 100 in both periods ...

We examine the practice of resetting the terms of previously-issued executive stock options. We identify properties of reset options, develop a model for valuing resettable options, and characterize the "rms that have reset options. We "nd the vast majority of options are reset at-the-money, resulting, on average, in the strike price dropping 40%. Our valuation model suggests that resetting has only a small impact on the ex-ante value of an option award, but the ex-post gain can be substantial. Finally, we "nd resetting has a strong negative relation with "rm performance even after correcting for industry performance.

This paper demonstrates how meta-analysis can be combined with structural equation modeling (MASEM) to address new questions in strategic management research. We review this integration, describe its implementation, and compare findings from bivariate meta-analyses, a direct-effect structural equations model, and two mediating frameworks using data on the strategic leadership and performance relationship. Results drawn from 208 articles that collectively included data on 495,638 observations demonstrate the new insights available from MASEM while also suggesting a revision to conventional thinking on strategic leadership. Whereas some theories posit that boards of directors influence firm performance through monitoring and disciplining the top management team, MASEM provides more support for the view that boards mediate the top management teams' decisions. Implications for applying MASEM in strategic management are offered.

This paper demonstrates how meta-analysis can be combined with structural equation modeling (MASEM) to address new questions in strategic management research. We review this integration, describe its implementation, and compare findings from bivariate meta-analyses, a direct-effect structural equations model, and two mediating frameworks using data on the strategic leadership and performance relationship. Results drawn from 208 articles that collectively included data on 495,638 observations demonstrate the new insights available from MASEM while also suggesting a revision to conventional thinking on strategic leadership. Whereas some theories posit that boards of directors influence firm performance through monitoring and disciplining the top management team, MASEM provides more support for the view that boards mediate the top management teams' decisions. Implications for applying MASEM in strategic management are offered

This paper demonstrates how meta-analysis can be combined with structural equation modeling (MASEM) to address new questions in strategic management research. We review this integration, describe its implementation, and compare findings from bivariate meta-analyses, a direct-effect structural equations model, and two mediating frameworks using data on the strategic leadership and performance relationship. Results drawn from 208 articles that collectively included data on 495,638 observations demonstrate the new insights available from MASEM while also suggesting a revision to conventional thinking on strategic leadership. Whereas some theories posit that boards of directors influence firm performance through monitoring and disciplining the top management team, MASEM provides more support for the view that boards mediate the top management teams' decisions. Implications for applying MASEM in strategic management are offered.

We examine whether involuntary CEO replacements pay off by improving firm prospects. We find CEO successors' acquisition investments to be associated with significantly higher shareholder gains relative to their predecessors and the average CEO. This improvement in postturnover acquisition performance appears to be a function of board independence, hedge fund ownership, and the new CEO's relative experience. CEO successors also create sizeable shareholder value by reversing prior investments through asset disposals and discontinuing operations and by employing more efficient investment strategies. Our evidence suggests that firing a CEO pays off.

This study proposes a new direct method of measuring managerial overconfidence using an acquisition setting. CEOs with significantly higher synergies forecast error (SFE), measured as the deviation between acquisition forecasted operating synergies and actual realized operating synergies, are more likely to exhibit traits of overconfidence. In support of this view, we find that synergies forecast error is positively related to takeover premium and negatively related to acquirer returns. Additionally, validation tests confirm that high SFE firms conduct more diversifying acquisitions. Reflecting, as well, the ex-ante power of the overconfidence measure in other settings, high SFE firms have a positive relation with capital expenditures, leverage, and innovation, and negative relation with equity issues.

Executive compensation is a major strategy being employed by deposit money banks to achieve steady growth in their customer acquisition efforts. The banks face series of challenges including inability to achieve consistent service excellence which had negatively impacted on new customer acquisition. The study examined the effect of executive compensation package on customer acquisition of selected deposit money banks in Lagos State, Nigeria. The study employed cross sectional survey research design where four hundred and twenty-nine copies of the research instruments were administered to purposively selected respondents who were senior and executive staff of the selected banks. The result of multiple regression analysis revealed that base salary (B = 0.217, p = 0.000) and recognition (B = 0.123, p = 0.012) have positive and significant effect on customer acquisition while supplementary benefits (B = 0.017, p = 0.568) and executive bonus (B = 0.044, p = 0.175) have positive, but insignificant effect on customer acquisition. The study concluded that executive compensation has positive effect on customer of selected deposit money banks in Lagos State, Nigeria. It was recommended that attractive compensation management should be instituted to ensure that executive staff are adequately remunerated to facilitate their performance with less distractions.

Executive compensation design and board oversight are central governance mechanisms that shape the risk appetite of corporate executives. This study examines the moderating role of board oversight on the relationship between executive compensation, decomposed into equity-based compensation and bonus compensation, and firm-level risk-taking behaviour among listed firms in Nigeria for the period 2011–2025. Employing an ex-post facto research design and panel regression methodology on an unbalanced panel of 151 listed firms on the Nigerian Exchange Group (NGX), the study adopts fixed effects models validated through the Hausman specification test. The findings reveal that equity-based compensation and bonus compensation both exert a statistically significant positive influence on risk-taking, consistent with agency theory predictions. However, board oversight significantly moderates and attenuates this relationship, suggesting that stronger governance structures constrain excessive managerial risk-taking induced by incentive pay. Firm size exhibits a significant negative relationship with risk-taking, while growth opportunities are positively associated with risk. Industry affiliation also plays a marginal but significant role. These results carry profound implications for corporate governance reform, regulatory design by the Securities and Exchange Commission Nigeria (SEC), and compensation committee practices across Nigerian listed firms. The study contributes to the sparse but growing governance literature within the Sub-Saharan African context and calls for more nuanced, contextually grounded compensation policies

See infra text accompanying note 266. 4. CORPORATE LAW, supra note 2, at 4. 5. Id. at 35. 6. Id. at 93. 7. Id. at 254. 8. Id. at 76; see also id. at 98 (managers' bad decision is a "howler"); id. at 157 (courts value stocks by using a "bucket full of methods"). But see id. at 92 (managers' one-time "defalcations"). 9. See, e.g., ADAM SMITH, THE WEALTH OF NATIONS 26-27 (R. H. Campbell et al., eds., Clarendon Press 1976) (1776) ("it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest."). 10. An example is the book's almost comically literal suggestion that one's approach to corporate law depends on one's idea of a corporation's birth. You are likely to be driven to a regulatory view of corporations if you assume that corporations are born with a complement of managers, employees, and investors .... But corporations do not arise by spontaneous generation .... They must attract customers and investors by promising and delivering what those people value. Corporations that do not do so will not survive. When people observe that firms are very large in relation to single investors, they observe the product of success in satisfying investors and customers. Id. at 4 (emphasis added). 1 I. This difficulty no doubt results from the fact that the book is built around their articles, which engaged in (and began) sophisticated debates with knowledgeable scholars. For this reason, the book will not supplant Dean Clark's book as the law student's best in-depth introduction to corporate law. See ROBERT C. CLARK, CORPORATE LAW (1986). Clark's work forgives a lack of legal knowledge while still covering all the important doctrines and theories. It is self-consciously tailored to an audience of "future lawyers." Id. at xiii. The intended audience of Easterbrook and Fischel's contributions is less clear. 12. Compare CoRPoRATE LAW, supra note 2, at 169 (arguing that contracts allowing loyal auctions would be difficult or impossible to write) with id. at 205 (arguing that it is "easy to [write contracts] to facilitate auctions while tying managers' hands"). 17. CORPORATE LAW, supra note 2, at 3-4. The contractual paradigm is outlined in the book's first chapter, which would make an excellent introduction to courses on corporations and securities regulation. Id. at 1-39. Such general explanations of their contractual paradigm may, in the long run, have the greatest impact. See generally THOMAS KUHN, THE STRUCTtJRE OF SCIENTIFIC REVOLUJTIONS 43-51, 111-35 (2d ed. 1970). 18. CORPORATE LAW, supra note 2, at 24. While Easterbrook and Fischel self-consciously place themselves in the contractarian tradition, they are careful to distinguish theirs as an analysis of "real" contracts, rather than of "unreal" political or social contracts. Id. at 15-22. As we note later, it is unclear whether they consistently embrace "real" market contracts over those implied by their ideal analysis. See infra text accompanying note 99. Much of the emphasis on contract is to be understood as a corrective to undue attention to the concept of "fairness." Id. at vii. They convey their analytical rejection of the concept by dismissively referring to it only inside of quotation marks. Id; see also Easterbrook and Fischel, supra note 16 (arguing that the fiduciary principle has little to do with "fairness"); Frank H. Easterbrook, Abstraction and Authority, 59 U. C. L. REV., 349, 350 (1992) ("Abstraction . . . may liberate courts from rules, license ex post appreciations and 'fair' divisions of the stakes."). 19. CORPORATE LAW, supra note 2, at 34. Its analysis builds upon the ideas of Ronald Coase, to whom the book is dedicated. (The book is also dedicated to their parents, to whom they affectionately refer as "necessary conditions of its existence." Id. at viii.) Unlike most law-and-economics scholars, they acknowledge a primary debt to Coase's analysis of the firm rather than to his later work on The Problem of Social Cost.

This study investigates the relationship between the use of stock options and bank risk in the context of the 2007-2008 financial crisis for banks that are authorised to accept deposits in the United Kingdom. These banks are affected by the European regulation on variable pay, but, to our knowledge, their usage of stock options has not been examined in previous studies. Paying bankers with stock options can generate two types of managerial incentives, namely, incentives to improve performance and incentives to take risk. Controlling for incentives to improve performance, we find that banks’ total risk and insolvency risk increase with the risk-taking incentives induced by stock options. We also find that this relationship is more pronounced surrounding the crisis period. The findings of this study can serve as institutionally relevant empirical support for the European regulation on variable pay

We use payroll data in the Austrian, German, and Swiss banking sector to identify incentive pay in the critical banking segments of treasury/capital market management and investment banking for 67 banks. We document an economically significant correlation of incentive pay with both the level and volatility of bank trading income - particularly for the pre-crisis period 2003 – 2007, in which incentive pay was strongest. This result is robust if we instrument the bonus share in the capital market divisions with the strength of incentive pay in unrelated bank divisions like retail banking.Moreover, pre-crisis incentive pay appears too strong for an optimal tradeoff between trading income and risk, which maximizes the net present value of trading income. Further analyses indicate that the bonus moderation during the crisis has removed excessive pre-crisis incentive pay

The common view is that insider trading is always unethical and illegal. But such is not the case. Some forms of insider trading are legal. Furthermore, applying ethical principles to insider trading causes one to conclude that it is also sometimes ethical. This paper attempts to get past the hype, the press reports, and the political grandstanding to get to the truth of the matter. The author applies two sets of ethical principles -utilitarianism and rights theory -in an attempt to determine when, and in what circumstances, insider trading is ethical. The views of Henry Manne, an early proponent of insider trading, are critically examined, as are the major arguments against insider trading. Is insider trading good for the company if it is used as a form of executive compensation which makes it possible to pay lower salaries than would otherwise be the case? Does insider trading cause the stock market to work more efficiently? If insider trading does increase efficiency, is that sufficient to call for its total legalization, or are there other things to be considered? Several arguments against insider trading have been put forth over the last few decades but there are problems with all of them. One of the main arguments is the fairness argument. The problem with this argument is that different people have different definitions of unfairness. A closely related argument is the level playing field argument, which advocates wider dissemination of information so that it is less asymmetric. One problem with the level playing field argument is that it is better applied to sporting competitions than to trading in information. Some economists argue that forcing the disclosure of nonpublic information can actually result in more harm than good and must necessarily involve the violation of property rights. Other arguments examined in this chapter include the fiduciary duty argument, the problem of outside traders, the misappropriation doctrine and the restrictions that insider trading laws place on freedom of speech and press. The article concludes by setting forth some principles or guidelines to determine when insider trading should be punished and when it should not.

xecutive compensation has long attracted a great deal of attention from financial economists. Indeed, the increase in academic papers on the subject of CEO compensation during the 1990s seems to have outpaced even the remarkable increase in CEO pay itself during this period (Murphy, 1999). Much research has focused on how executive compensation schemes can help alleviate the agency problem in publicly traded companies. To understand adequately the landscape of executive compensation, however, one must recognize that the design of compensation arrangements is also partly a product of this same agency problem. Our focus in this paper is on publicly traded companies without a controlling shareholder. When ownership and management are separated in this way, managers might have substantial power. This recognition goes back, of course, to Berle and Means (1932, p. 139) who observed that top corporate executives, "while in office, have almost complete discretion in management." Since Jensen and , the problem of managerial power and discretion has been analyzed in modern finance as an "agency problem." Managers may use their discretion to benefit themselves personally in a variety y Lucian Arye Bebchuk is the William J. Friedman Professor of Law, Economics and Finance,

. This misperception led one compensation consultant, Yale D. Tauber, to label jet use as "an efficient way of delivering something of value to the executive." Lublin, supra note 34. 64. We thank Marc Abramowitz and Yitz Applebaum for useful discussions on the cost of operating corporate jets.

This paper contains a draft of Part IV and the bibliography of our forthcoming book, Pay without Performance: The Unfulfilled Promise of Executive Compensation (Harvard University Press, September 2004). The book provides a detailed account of how structural flaws in corporate governance have enabled managers to influence their own pay and have produced widespread distortions in pay arrangements. The book also examines how these flaws and distortions can best be addressed. Part IV of the book discusses how executive compensation -and corporate governance more generally -can be improved. We examine the extent to which pay arrangements can be improved by adopting board process rules, imposing shareholder approval requirements, and making pay more transparent. We conclude that problems with compensation arrangements cannot be fully addressed without ensuring that directors focus on shareholder interests and operate at arm's length from the executives whose compensation they set. To achieve this result, we argue, it is not sufficient to make directors independent of executives as recent reforms has sought to do; it is also necessary to make directors dependent on shareholders by changing the legal arrangements that insulate boards from shareholders.

This paper contains a draft of Part III of our forthcoming book, Pay without Performance: The Unfulfilled Promise of Executive Compensation (Harvard University Press, September 2004). The book provides a detailed account of how structural flaws in corporate governance have enabled managers to influence their own pay and produced widespread distortions in pay arrangements. The book also examines how these flaws and distortions can best be addressed. Part III of the book examines how managerial influence has operated to reduce the performance-sensitivity of executive pay. Among other things, we examine the structure of non-equity compensation, the design of conventional option plans, the use of restricted stock grants, and managers' freedom to unload options and shares.

Executive compensation has long attracted a great deal of attention from financial economists. Indeed, the increase in academic papers on the subject of CEO compensation during the 1990s seems to have outpaced even the remarkable increase in CEO pay itself during this period (Murphy, 1999). Much research has focused on how executive compensation schemes can help alleviate the agency problem in publicly traded companies. To understand adequately the landscape of executive compensation, however, one must recognize that the design of compensation arrangements is also partly a product of this same agency problem. Alternative Approaches to Executive Compensation Our focus in this paper is on publicly traded companies without a controlling shareholder. When ownership and management are separated in this way, managers might have substantial power. This recognition goes back, of course, to Berle and Means (1932, p. 139) who observed that top corporate executives, “while in office, have almo...

. This misperception led one compensation consultant, Yale D. Tauber, to label jet use as "an efficient way of delivering something of value to the executive." Lublin, supra note 34. 64. We thank Marc Abramowitz and Yitz Applebaum for useful discussions on the cost of operating corporate jets.

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 decoupled 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...

This study relies on environmental stewardship, a stakeholder enlarged view of stewardship theory, and institutional theory to analyze the relationship between CEO compensation and firms' environmental commitment in a worldwide sample of 520 large listed firms. Our findings show that environment friendly firms pay their CEOs less total compensation and rely less on incentive-based compensation than environment careless firms. This negative relationship is stronger in institutional contexts where national environmental regulations are weaker. Our findings have important theoretical meaning and practical implications. Results show that CEOs do not necessarily act opportunistically; rather some of them may be willing to act as stewards of the natural environment and accept a lower, less incentive-based, compensation from environment friendly firms. This study also provides evidence of the important influence of the institutional context in setting-up CEO compensation as the relationship is stronger when national environmental regulations are weaker. Our findings question the universal validity of agency theory in explaining CEO compensation. Compensation based on pecuniary incentives might be less indicated to motivate CEOs who feel rewarded by playing a stewardship role for environment friendly firms. When designing compensation for CEOs, compensation committees and external compensation advisors should consider psychological and institutional factors that might affect CEO motivation.

This paper examines the effectiveness of the use of executive compensation linked to Corporate Social Responsibility (CSR) goals across US firms. Empirical analysis of a cross-industry sample of 746 listed companies for the period 2002–2013 showed that the use of CSR-linked compensation contracts for Named Executive Officers (NEOs) promotes CSR performance. More specifically, we found that linking NEOs’ compensation to CSR goals produces positive effects in the 3rd year after adoption. As firms accumulate experience and learn how to use the system over the following eight periods, CSR performance increases monotonically. Furthermore, experience accumulated over time affects the different specifications of CSR performance asymmetrically, by reducing both environmental and social CSR concerns and increasing only environmental CSR strengths. Interestingly, we also found that the simultaneous use of other CSR-focused governance systems moderates the effect of a firm’s accumulated experi...

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Deferred compensation is often proposed as an instrument to prevent managerial myopia. However, empirical studies show that its practical use is limited when it comes to managerial retirement. We study the optimal design of accountingbased deferred compensation for retiring managers. While deferred compensation is useful in establishing long-term incentives, it causes contracting frictions in subsequent periods. Deferred bonuses of retiring managers imply inefficiently weak incentives for incoming managers. This down-scaling effect renders deferred compensation less useful in providing long-term incentives. We also find that the down-scaling effect has implications for the desirability of accounting timeliness-that is, the timely recognition of future cash flows in current accounting earnings-from a stewardship perspective. If managers' long-term actions are sufficiently important, higher timeliness can cause more myopic managerial incentives. accounting timeliness, deferred compensation, managerial myopia, managerial retirement, performance measurement, stewardship Rémunération différée, retraite des cadres et comptabilité financière du point de vue de l'intendance Résumé La rémunération différée est. souvent considérée comme un outil permettant de prévenir la myopie managériale. Cependant, des études empiriques révèlent que son

We study large discrete decreases in CEO pay and compare them to CEO forced turnover. The determinants are similar, as are the performance improvements after the action. After the pay cut, the CEO pay-for-performance sensitivity is abnormally high, such that the CEO can restore his pay level by reversing the poor performance. After either a pay cut or forced turnover, CEOs reduce investment and leverage, and improve performance, on average. Together, our results show that the possibility of these large compensation cuts provides ex ante incentives for CEOs to exert effort to avoid poor performance and that CEOs take actions to improve poor performance once pay is cut. The similarity of the causes and outcomes of large pay cuts compared to forced turnover suggests that large pay cuts are used as a substitute for forced turnover, helping to explain why forced turnover is rare.

We explore whether compensation policies in bidding firms counter or exacerbate agency conflicts by examining CEO pay and incentives around corporate takeovers. We find that even in mergers where bidding shareholders are worse off, bidding CEOs are better off three quarters of the time. In fact, the CEO's pay and his overall wealth become insensitive to negative stock performance, but his wealth rises in step with positive stock performance. Corporate governance matters; bidding firms with stronger boards retain the sensitivity of their CEOs' compensation to poor performance following the acquisition. In comparison, we find that CEOs are not rewarded for undertaking major capital expenditures. Our evidence is inconsistent with the incentive alignment hypothesis in corporate acquisitions.

We explore how compensation policies following mergers affect a CEO's incentives to pursue a merger. We find that even in mergers where bidding shareholders are worse off, bidding CEOs are better off three quarters of the time. Following a merger, a CEO's pay and overall wealth become insensitive to negative stock performance, but a CEO's wealth rises in step with positive stock performance. Corporate governance matters; bidding firms with stronger boards retain the sensitivity of their CEOs' compensation to poor performance following the merger. In comparison, we find that CEOs are not rewarded for undertaking major capital expenditures. THE SEPARATION OF OWNERSHIP AND CONTROL leads to many potential conf licts of interest between shareholders and corporate management. Since , the literature has focused much attention on how managerial ownership and compensation design can be used to align manager and shareholder interests. The bulk of the empirical evidence supports the hypothesis that managers with greater ownership or managers with more equity-based incentives are less likely to take value-destroying actions. Partly as a consequence of this finding, the 1990s witnessed explosive growth in the grants of equity-based incentives (option and restricted stock grants) to corporate managers ). This raises the possibility that the value of a manager's annual f low of new grants is of the same order of magnitude as

The paper investigates the impact of M&As on bidder CEO and other executive compensation employing a unique sample of 100 completed bids in the UK over the period 1998-2001. Our findings indicate that less independent and larger boards award CEOs significantly higher bonuses following M&A completion and that UK CEOs and executive directors are rewarded more for the effort they place in order to accomplish an outside of their industry (large) merger rather than a horizontal (small) merger. Overall our findings offer support for the managerial power rather than the agency theory perspective on managerial compensation.

This article develops a framework for studying individuals' ideas about what constitutes just compensation for chief executive officers (CEOs) and reports estimates of just CEO pay and the principles guiding ideas of justice. The sample consists of students pursuing a Master of Business Administration (MBA) degree in Sweden and the United States. The framework, based on justice theory and making use of Rossi's factorial survey method, enables assessment of ideas of fairness in CEO compensation, including (1) the just CEO compensation, in the eyes of each observer; (2) the principles of microjustice — observers' ideas about `who should get what' based on characteristics of CEOs and their firms; and (3) principles of macrojustice — ideas about the just level and dispersion in compensation across all CEOs. Our estimates yield the following main results: First, there is broad agreement on the median just CEO compensation but substantial inter-individual variation in the ...