Comapny
Executive Compensation
EC
The Managerial Power Theory of Executive Compensation by Paul J. Schneider, JD, LLM Abstract: As a consequence of the disconnect between executive compensation and the financial meltdown that battered the economy as a whole, the academic community is developing a new theory of executive compensation, which is referred to as the managerial power theory of executive compensation. The proponents of this theory argue that the current system of corporate governance unavoidably creates incentives and psychological and social forces that distort executive compensation. These proponents make several recommendations to provide executives with well designed and cost-effective compensation programs that will generate shareholder value. Planners should be knowledgeable about these coming changes because they could very well be considered “best practices” in the near future, and as such could establish the standard by which the executive compensation programs for nonpublicly held companies will be measured.
as well as government regulators. Moreover, publicly traded companies are more critically reviewing their existing compensation plans and structures to make sure that they are properly adapted to the current economic and financial environment. Thus, this is an appropriate time for financial service professionals to look from a theoretical and conceptual standpoint at how the academic community is analyzing executive compensation and in particular, the long-term trend of increasing CEO pay. Pay for Performance and Optimal Contracting Before the financial crisis, the predominant trend in executive compensation was to improve the correlation between pay and performance so that the interests of shareholders and top executives would be aligned. Consequently, as boards of directors sought to achieve pay for performance, one outcome of the trend was to place more emphasis on performance-vested equity compensation for top executives. This approach
EC
The Managerial Power Theory of Executive Compensation by Paul J. Schneider, JD, LLM Abstract: As a consequence of the disconnect between executive compensation and the financial meltdown that battered the economy as a whole, the academic community is developing a new theory of executive compensation, which is referred to as the managerial power theory of executive compensation. The proponents of this theory argue that the current system of corporate governance unavoidably creates incentives and psychological and social forces that distort executive compensation. These proponents make several recommendations to provide executives with well designed and cost-effective compensation programs that will generate shareholder value. Planners should be knowledgeable about these coming changes because they could very well be considered “best practices” in the near future, and as such could establish the standard by which the executive compensation programs for nonpublicly held companies will be measured.
as well as government regulators. Moreover, publicly traded companies are more critically reviewing their existing compensation plans and structures to make sure that they are properly adapted to the current economic and financial environment. Thus, this is an appropriate time for financial service professionals to look from a theoretical and conceptual standpoint at how the academic community is analyzing executive compensation and in particular, the long-term trend of increasing CEO pay. Pay for Performance and Optimal Contracting Before the financial crisis, the predominant trend in executive compensation was to improve the correlation between pay and performance so that the interests of shareholders and top executives would be aligned. Consequently, as boards of directors sought to achieve pay for performance, one outcome of the trend was to place more emphasis on performance-vested equity compensation for top executives. This approach