Duration of Executive Compensation

Gopalan, Radhakrishnan; Milbourn, Todd T.; Song, Fenghua; Thakor, Anjan V.

doi:10.1111/jofi.12085

Cited by 285 publications

(201 citation statements)

References 41 publications

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“…Also, combining short‐ and long‐term executive pay at financial institutions, Gopalan et al . () argue that total executive compensation in financial sector is more long‐term oriented (as proxied by the duration) than in other industries, being above median across 48 different economic sectors.…”

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confidence: 99%

Corporate Governance of Banks: A Survey

Haan

Vlahu

2015

Journal of Economic Surveys

197

105

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This paper reviews the empirical literature on the corporate governance of banks. We start by highlighting the main differences between banks and nonfinancial firms and focus on three characteristics that make banks special: (i) regulation, (ii) the capital structure of banks, and (iii) the complexity and opacity of their business and structure. Next, we discuss the characteristics of corporate governance in banks and how they differ from the governance of nonfinancial firms. We then review the evidence on three governance mechanisms: (i) boards, (ii) ownership structures, and (iii) executive compensation. Our review suggests that some of the empirical regularities found in the literature on corporate governance of nonfinancial institutions, such as the positive (negative) association between board independence (size) and performance, do not hold for banks. Also, existing work provides no conclusive results regarding the relationship between different governance mechanisms and various measures for banks’ performance. We discuss potential explanations for these mixed results.

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confidence: 99%

Corporate Governance of Banks: A Survey

Haan

Vlahu

2015

Journal of Economic Surveys

197

105

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“…With regards to managerial compensation practices, our results suggest, for instance, that variation in the nature of information arrival across industries and tasks ought to be a key determinant of the duration of executive pay (see e.g., Gopalan et al (2014) for an empirical analysis). In a similar vein, our modeling toolbox can be used to gauge the effects of regulatory interventions in the timing dimension of (executive) compensation (see companion paper by Hoffmann et al (2018)).…”

Section: Introductionmentioning

confidence: 93%

Only Time Will Tell: A Theory of Deferred Compensation

2018

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This paper provides a complete characterization of optimal contracts in principalagent settings where the agent's action has persistent effects. We model general information environments via the stochastic process of the likelihood-ratio. The martingale property of this performance metric captures the information benefit of deferral. Costs of deferral may result from both the agent's relative impatience as well as her consumption smoothing needs. If the relatively impatient agent is risk neutral, optimal contracts take a simple form in that they only reward maximal performance for at most two payout dates. If the agent is additionally risk-averse, optimal contracts stipulate rewards for a larger selection of dates and performance states: The performance hurdle to obtain the same level of compensation is increasing over time whereas the pay-performance sensitivity is declining.

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“…Gopalan et al. () provide evidence that the duration of stock‐based compensation is about three to five years. They document a negative association between the duration of incentives and measures of manipulation such as discretionary accruals.…”

Section: The Model At Work: Numerical Examples and Empirical Implicatmentioning

confidence: 99%

CEO Horizon, Optimal Pay Duration, and the Escalation of Short‐Termism

Marinović¹,

Varas²

2019

The Journal of Finance

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This paper studies optimal contracts when managers manipulate their performance measure at the expense of firm value. Optimal contracts defer compensation. The manager's incentives vest over time at an increasing rate, and compensation becomes very sensitive to short‐term performance. This generates an endogenous horizon problem whereby managers intensify performance manipulation in their final years in office. Contracts are designed to encourage effort while minimizing the adverse effects of manipulation. We characterize the optimal mix of short‐ and long‐term compensation along the manager's tenure, the optimal vesting period of incentive pay, and the dynamics of short‐termism over the CEO's tenure.

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Duration of Executive Compensation

Cited by 285 publications

References 41 publications

Corporate Governance of Banks: A Survey

Corporate Governance of Banks: A Survey

Only Time Will Tell: A Theory of Deferred Compensation

CEO Horizon, Optimal Pay Duration, and the Escalation of Short‐Termism

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