高管薪酬和激励外文翻译可编辑.docx

1、高管薪酬和激励外文翻译可编辑高管薪酬和激励外文翻译 外文题目 Executive Compensation And Incentives 外文出处 Acodemy of Management Perspectives,20062:p25-40 外文作者 Martin J. Conyon 原文:Executive Compensation And IncentivesMartin J. Conyon Executive compensation is a complex and controversial subject. For many years, academics, policymak

2、ers, and the media have drawn attention to the high levels of pay awarded to U.S. chief executive officers CEOs, questioning whether they are consistent with shareholder interests. Some academics have further argued that flaws in CEO pay arrangements and deviations from shareholders interests are wi

3、despread and considerable. For example, Lucian Bebchuk and Jesse Fried provide a lucid account of the managerial power view and accompanying evidence. Marianne Bertrand and Sendhil Mullainathan too provide an analysis of the skimming view of CEO pay. In contrast, John Core et al. present an economic

4、 contracting approach to executive pay and incentives, assessing whether CEOs receive inefficient pay without performance. In this paper, we show what has happened to CEO pay in the United States. We do not claim to distinguish between the contracting and managerial power views of executive pay. Ins

5、tead, we document the pattern of executive pay and incentives in the United States, investigating whether this pattern is consistent with economic theory. The Context: Who Sets Executive Pay Before examining the empirical evidence presented in this paper, it is important to consider the pay-setting

6、process and who sets executive pay. The standard economic theory of executive compensation is the principal-agent model. The theory maintains that firms seek to design the most efficient compensation packages possible in order to attract, retain, and motivate CEOs, executives, and managers. In the a

7、gency model, shareholders set pay. In practice, however, the compensation committee of the board determines pay on behalf of shareholders. A principal shareholder designs a contract and makes an offer to an agent CEO/ manager. Executive compensation ameliorates a moral hazard problem i.e., manager o

8、pportunism arising from low firm ownership. By using stock options, restricted stock, and long-term contracts, shareholders motivate the CEO to imize firm value. In other words, shareholders try to design optimal compensation packages to provide CEOs with incentives to align their mutual interests.

9、This is the contract approach to executive pay. Following Core, Guay, and Larcker, an efficient or optimal contract is one “that imizes the net expected economic value to shareholders after transaction costs such as contracting costs and payments to employees. An equivalent way of saying this is tha

10、t contracts minimize agency costs.” Several important ideas flow from this definition. First, the contract reduces manager opportunism and motivates CEO effort by providing incentives through risky compensation such as stock options. Second, the optimal contract does not imply a “perfect” contract,

11、only that the firm designs the best contract it can in order to avoid opportunism and malfeasance by the manager, given the contracting constraints it faces. Third, in this arrangement, the firm does not necessarily eliminate agency costs, but instead evaluates the marginal benefits of implementing

12、the contract relative to the marginal costs of doing so. Improvements in regulation or corporate governance can possibly alter these costs and benefits, making different contracts desirable. Moreover, what is efficient at one point in time may not be at another. Improvements in board governance, for

13、 example by adding independent directors, may lead to different patterns of compensation, stock, and option contracts that are desirable for one firm but not another. An alternative theory is that CEOs set pay. This is the managerial power view, exemplified recently by Bebchuk and Fried. In this the

14、ory, the board and compensation committee cooperate with the CEO and agree on excessive compensation, settling on contracts that are not in shareholders interests. This excess pay constitutes an economic rent, an amount greater than necessary to get the CEO to work in the firm. The constraints the C

15、EOs face are reputation loss and embarrassment if caught extracting rents, what Bebchuk and Fried call “outrage costs.” Outrage matters because it can impose on CEOs both market penalties such as devaluation of a managers reputation and social costs?the social costs come on top of the standard marke

16、t costs. They argue that market constraints and the social costs coming from excessively favorable pay arrangements are not sufficient in preventing considerable deviations from optimal contracting. Executive Compensation There is substantial disclosure about U.S. executive compensation. The Securit

17、ies and Exchange Commission SEC expanded and enhanced disclosure rules for U.S. executives in 1992. As a result, the proxy statements of firms contain considerable detail on stock ownership, stock options, and all components of compensation for the top five corporate executives. There are four basic

18、 components to executive pay, each having been the subject of much research. First, executives receive a base salary, which is generally benchmarked against peer firms. Second, they enjoy an annual bonus plan, usually based on accounting performance measures. Third, executives receive stock options,

19、 which represent a right, but not the obligation, to purchase shares in the future at some pre-specified exercise price. Lastly, pay includes additional compensation such as restricted stock, long-term incentive plans, and retirement plans. Executive Incentives We now turn to executive incentives an

20、d the link between pay and firm performance. The evidence demonstrates that executive compensation and the fraction of pay accounted for by option grants increased during the 1990s. Principal-agent theory predicts that a firm designs contracts in order to yield optimal incentives, therefore motivati

21、ng the CEO to imize shareholder value. In designing the contract, the firm recognizes the CEO is risk averse. Thus, imposing greater incentives requires more pay to compensate the agent for increased risk. In the previous section, the paper demonstrated that CEO pay has increased. Next, we examine w

22、hat has happened to CEO incentives. The analysis shows that executives have considerable equity incentives that create a strong and increasing link between CEO wealth and firm performance. This finding seems at odds with the notion that executive pay and performance are decoupled. It is, however, co

23、nsistent with other economic evidence, showing that the link between pay and performance has been increasing in the United States. Executives receive incentives from several sources. They receive financial incentives from salary and bonus, as well as new grants of options and restricted stock, which

24、 together measure flow compensation. They also receive incentives from changes in their aggregate holdings of stock and options in the firm, as described in detail below. Finally, the probability of termination because of poor performance gives the CEO an incentive to pursue strategies that imize fi

25、rm value. In this case, if terminated, an executive suffers reputation loss and human capital devaluation in the managerial labor market. However, this paper?consistent with other recent research in financial economics?focuses on compensation and equity incentives, leaving aside career concerns and

26、the labor market for managerial talent. In other words, it restricts attention to financial incentives. The key to understanding financial incentives is recognizing that they arise from the entire portfolio of equity holdings and not simply from current pay. Equity incentives, then, are the incentiv

27、es to increase the stock price arising from the managers ownership of financial securities in the firm. For example, a CEO may receive 100,000 options this year, which might add to 400,000 options granted in previous years, for a total of 500,000 options held. If the stock price decreases, then the

28、value of the 100,000 options granted this year declines? but so does the value of the options accumulated from previous years. Since the CEO will care about the whole stock of 500,000 options, not simply this years 100,000, executive compensation received in any given year provides only a partial pi

29、cture of CEO wealth and incentives. To understand CEO incentives fully, it is important to focus on the aggregate amount of shares, restricted stock, and stock options that the CEO owns in the firm. The evidence shows that CEOs have plenty of financial incentives, arising primarily from CEO ownershi

30、p of stock and options in their firms. Again, we would stress that such financial incentives are only one factor motivating executives. Agents are as likely to be motivated by intrinsic factors of the job, career concerns, social norms, tournaments, and the like. One problem with stock options and o

31、ther forms of incentive pay is not that they provide too few incentives, but that they may lead to unintended consequences. It is well known that incentives can bring about behavior by the agent that was unanticipated by the principal. In a classic paper, Steven Kerr highlighted the folly of rewardi

32、ng A while hoping for B. In short, he articulated the notion that one gets what one pays for. If one rewards activity A and not B, then people will exert effort on A, while de-emphasizing B. Kerr illustrates his point with an array of examples from politics, industry, and human resource management.

33、In general, this is a problem of providing appropriate incentives to agents engaging in multiple tasks. More recently, Robert Gibbons has discussed the design of incentive programs recognizing such problems. Another problem with incentive compensation is that it may encourage opportunistic behavior by managers, manipulation of performance measures,