Executive Compensation: An Overview of Research on Corporate Practices and Proposed Reforms

Abstract

Two landmark episodes of the last decade, the 2001 dot-com crisis and the 2008 bursting of the housing bubble, have drawn attention to the size and structure of executive pay plans and their possible role in propagating or worsening the crises. In this policy-oriented piece, the authors discuss the key issues in the debate on executive pay and express their support for a number of reform proposals that have been advanced in academic and policy circles. Copyright Copyright (c) 2010 Morgan Stanley.

Determinants of CEO Compensation before and after the Financial Crisis

“…They, however, also found that while total compensation increased during and after the 2008 financial crisis, cash compensation decreased. Faulkender et al (2010) had similar findings that CEO compensation increased while stock market prices fell [31]. These findings conflict, in some respects, with the agency view of CEO compensation since stock prices and earnings declined significantly in 2009.…”

CEO deal-making activities and compensation

“…We find that, even in these types of deals, CEO pay is increasing in the activity. In this vein, our study also contributes to the policy debate on the effectiveness of CEO compensation as outlined by Faulkender, Kadyrzhanova, Prabhala, and Senbet (2010). 7 The paper proceeds as follows.…”

Do Corporate Social Performance Targets in Executive Compensation Contribute to Corporate Social Performance?

“…Research suggests that it is essential to distinguish between different uses of performance measurement and their determinants (Van Veen-Dirks 2010). It is often questioned whether compensation plans contain sufficient incentives to take optimal actions on behalf of the principals (Jensen and Murphy 1990) and other stakeholders (Faulkender et al 2010). …”