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An Introduction to Executive Compensation
- 1st Edition - February 28, 2002
- Author: Steven Balsam
- Language: English
- eBook ISBN:9 7 8 - 0 - 0 8 - 0 4 9 0 4 2 - 7
General readers have no idea why people should care about what executives are paid and why they are paid the way they are. That's the reason that The Wall Street Journal, Fo… Read more
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Request a sales quoteGeneral readers have no idea why people should care about what executives are paid and why they are paid the way they are. That's the reason that The Wall Street Journal, Fortune, Forbes, and other popular and practitioner publications have regular coverage on them. This book not only proposes a reason--executives need incentives in order to maximize firm value (economists call this "agency theory")--it also describes the nature and design of executive compensation practices. Those incentives can take the form of benefits (salary, stock options), perquisites (reflecting the status of the executive within the organizational culture.
This book is important because it takes the elements of an executive compensation package apart, analyzing them in the contexts of both economic theory and corporate practice and then explains how, under varying conditions, one might construct a compensation package that optimizes an executive's and a corporation's performance.
This book is important because it takes the elements of an executive compensation package apart, analyzing them in the contexts of both economic theory and corporate practice and then explains how, under varying conditions, one might construct a compensation package that optimizes an executive's and a corporation's performance.
@introbul:Key Features@bul:* Presents an objective analysis of current executive compensation practices * Comprehensively reviews of academic literature and extant practice* Explains and illustrates the various components of the compensation package* Discusses the incentive, financial reporting, tax, political, equity, and firm value effects of those components
Part I: An IntroductionChapter 1: Introduction1.1 Introduction/Overview1.2 Owner-Manager Conflict: Agency Theory 1.3 Other theories explaining/influencing executive compensation 1.4 External influences on the compensation package1.5 Sources of Data on Executive Compensation Appendix 1.1: Item 402, of SEC Regulation S-KChapter 2: Overview of the Compensation Package 2.1 Introduction 2.2 Compensation Package SalaryBonus Stock Options Stock Grants Other Stock-based forms of compensationPensionsOther Compensation2.3 Usage of Major Components of Compensation2.4 Relative Importance of Components of Compensation Package2.5 Magnitude of Compensation Package2.6 Relative pay of CEO to other top executives2.7 SummaryChapter 3: An introduction to designing the executive compensation contract 3.1 Introduction3.2 Making the Offer Attractive3.3 Providing the Proper Incentives3.4 Designing the contract to retain the executive3.5 Minimize Costs to the corporation3.6 Summary Part II: The Components of the Compensation PackageChapter 4: Salary4.1 Introduction4.2 Incentives4.3 Affect on Willingness to take Risk4.4 How Much? 4.5 Equity Issues 4.6 Political Costs4.7 Financial ConsequencesCash FlowsTax deductibilityFinancial Reporting4.8 SummaryChapter 5: Bonus (Short and Long Term)5.1 Introduction5.2 Incentives Affect of lower and upper bounds Adherence to plan5.3 Effectiveness of bonus plans5.4 Political Costs5.5 Financial ConsequencesCash FlowsTax deductibilityExamples of Corporations Forfeiting DeductionsExamples of Executives Deferring Compensation to Preserve DeductionsExamples of Corporations Qualifying Their Plans to Preserve DeductionsFinancial Reporting 5.6 SummaryAppendix 5.1: Bonus Formula From Contract between David A Stonecipher and JeffersonPilot Corporation dated September 15, 1997Appendix 5.2: Lucent Technologies Inc. 1996 Long Term Incentive Program Chapter 6. Stock Grants and Options6.1 Introduction Stock Options/Stock Appreciation RightsStock GrantsIncentive EffectsUse of options and grants in the compensation package6.2 Incentives Affect on incentives to take riskEffect of stock compensation on ownershipChoices the corporation must make in granting stock compensation6.3 CostsDilutionCash Outflow6.4 Incentive effect versus dilutive effect. 6.5 Effectiveness of Stock-based compensation6.6 Macro/Market Effects6.7 Alternatives?Adjusted OptionsPremium Options6.8 Financial Consequences Cash FlowTaxesFinancial Reporting6.9 Political Costs6.10 SummaryAppendix 6.1: Nonqualified Stock Option Award Agreement Under the 1989 Stock Incentive Plan, between Delta Airlines and Leo F. Mullin President & Chief Executive OfficerAppendix 6.2: Restricted Stock Award Agreement Under the 1989 Stock Incentive Plan, between Delta Airlines and Leo F. Mullin President & Chief Executive OfficerChapter 7: Deferred Compensation 7.1 Introduction Pensions Defined Benefit Plans Defined Contribution Plans Supplemental Executive Retirement Plans Deferred Compensation Plans7.2 Funding Limitations 7.3 Incentives Vesting Pension Backloading Affect on Risk Preferences Bond on Performance Resolving Horizon Problem 7.4 Political Costs 7.5 Financial Consequences Cash Flows and Taxes Financial Reporting Consequences7.6 SummaryAppendix 7.1: Executive Pension Benefits, from General Motors Proxy Statement filed April 20, 1999Appendix 7.2: Senior Officer Excess Benefit Agreement, between Delta Airlines and Leo F. Mullin President & Chief Executive OfficerPart III: Related Issues Chapter 8: Ownership of the Corporation 8.1 Introduction 8.2 The affect of ownership on incentives Affect of ownership on executive risk preferencesAffect of ownership on corporate performanceExecutive ownership requirements 8.3 The effect of executive ownership on executive compensation Affect of executive ownership on the level of compensationAffect of executive ownership on the composition of the compensation package 8.4 The effect of director's ownership on executive compensation 8.5 The effect of large shareholders and institutional ownership on executive compensationAffect of large and institutional shareholders on the level of compensationAffect of large and institutional shareholders on the composition of the compensation package Affect of shareholder proposals on executive pay8.6 Summary Chapter 9: Corporate Governance 9.1 Introduction Statutory RegulationsCategories of Directors 9.2 Director compensation Determinants of Director CompensationEffect of Director Compensation on Director Independence 9.3 The effect of the Board of Directors on CEO compensation9.4 The effect of the Board of Directors on CEO turnover9.5 Examples of strong and weak boards9.6 An interesting response9.7 SummaryAppendix 9.1: Excerpt on Board of Directors from General Electric proxy statement filed with the Securities and Exchange Commission March 13, 2000Appendix 9.2: Excerpt on Board of Directors from Walt Disney proxy statement filed with the Securities and Exchange Commission January 5, 2000Part IV: Chapter 10: Is executive compensation really that high?10.1 IntroductionCEO compensation relative to corporate profitsCEO compensation relative to dividends paidCEO compensation relative to change in shareholder wealthCEO worthWell-compensated disappointments10.2 The relationship between executive compensation and firm performance10.3 The politics of executive compensation10.4 The effect of the political process on executive compensation10.5 International comparisons International Politics of Executive CompensationBritain Canada Germany Japan Why do these differences exist? Can these differences continue to exist?10.6 Comparisons to other occupations Wall Street Lawyers Sports and EntertainmentOne Big Difference10.7 SummaryAppendix 10.1: Selection of bills introduced, but not passed, with the potential to affect amounts, deductibility or disclosure of compensationAppendix 10.2: Resolutions Introduced to Limit Executive CompensationAppendix 10.3: Laws That Restrict Executive CompensationChapter 11: The effect of corporate and executive characteristics on designing an optimal compensation contract11.1 Introduction11.2 Goals11.3 The effect of corporate characteristics on the optimal contract Size Political Costs Risk Growth and Liquidity Labor Intensity Ownership & Board Composition Regulated Industries Financial Distress11.4 The effect of executive characteristics on the optimal contract Opportunity Cost Risk Aversion Horizon/Age Ownership11.5 The effect of joint characteristics on the optimal contract Tax Status Tax Qualified Options Deferred Compensation Fringe Benefits Corporate tax status11.6 SummaryChapter 12. Designing the executive compensation contract 12.1 Introduction12.2 SalaryImpact of Executive CharacteristicsOpportunity Cost Risk Aversion Executive Ownership Horizon Impact of Corporate Characteristics Size Growth Financial Considerations Ownership/Board Composition12.3 Bonus Targeted Bonus Amount Affect of executive characteristics on targeted bonus amount Affect of corporate characteristics on targeted bonus amount Performance Period Affect of executive characteristics on choice of performance periodAffect of corporate characteristics on choice of performance period Performance Measure(s)Affect of executive characteristics on the choice of performance measures Affect of corporate characteristics on choice of performance measures Performance TargetsAffect of corporate characteristics on choice of performance targets Method of Payment12.4 Stock Compensation Amount of stock compensationAffect of executive characteristics on amount of stock compensationAffect of corporate characteristics on amount of stock compensation Share versus option grantsImpact of executive characteristics on choice between option and share grantsImpact of corporate characteristics on choice between option and share grants Restrictions/VestingAffect of executive characteristics on restrictionsAffect of corporate characteristics on restrictionsGrant frequencyExercise price12.5 Deferred CompensationAmount DeferredLength of Deferral Deferral Vehicle Restrictions12.6 Benefits12.7 Summary Chapter 13: Conclusion: Recent trends and the future of executive compensation 13.1 Recent trends 13.2 The future Use of compensation surveys Performance Increased demand for executives Increased use of stock compensation Increased risk Can these trends continue? Bull Market ResumesMarket becomes stagnant or declines13.3 Conclusions
- No. of pages: 387
- Language: English
- Edition: 1
- Published: February 28, 2002
- Imprint: Academic Press
- eBook ISBN: 9780080490427
SB
Steven Balsam
Steven Balsam, Director of the Ph.D. Program in Business, Associate Professor of Accounting and Merves Research Fellow at the Fox School of Business at Temple University, obtained his Ph.D. from the City University of New York (Baruch College) in 1991. His research interests are in the areas of executive compensation and capital markets. He has published articles in academic journals including the Journal of Accounting and Economics, Contemporary Accounting Research, Journal of the American Taxation Association, Journal of Accounting and Public Policy, Journal of Accounting, Auditing and Finance, and Accounting Horizons. Prior to coming to Temple University he taught at Baruch College and the University of Rochester. Before entering academia he was a Certified Public Accountant working for the international accounting firm of Ernst & Young.
Affiliations and expertise
Temple University, Philadelphia, Pennsylvania, U.S.A.