Posts Tagged ‘equity incentives executive wealth’

• What Does It Mean for an Executive To Make $1 Million? (PDF)
  By Professor, David F. Larcker,  Allan L. McCall, Stanford GSB Phd candidate in accounting, and Brian Tayan, Researcher, Corporate Governance Research Program, Stanford Graduate School of Business
  December 14, 2011
• Companion PowerPoint presentation for use in teaching:  What Does It Mean for an Executive To “Make” $1 Million? (PowerPoint)

The press and other third-party observers frequently discuss executive compensation.  However, executive compensation figures are not always what they seem.  Executive pay packages contain a diverse mix of cash and non-cash incentives, payable in one or multiple years and subject to accruals, estimates, and restrictions that often render their ultimate value quite different from their expected value.  Even total compensation figures disclosed in the annual proxy comingle forward- and backward-looking amounts as well as fixed and contingent payments that make it difficult for investors to understand what compensation has been promised to executives and what they eventually earn.

We untangle the mess and examine three basic methods for calculating compensation: expected value, earned value, and realized value.

We discuss the applicability of each, illustrating concepts with real examples and summary statistics.

Why don’t companies voluntarily disclose these figures so stakeholders can better evaluate incentives and pay for performance?

Read the attached Closer Look and let us know what you think!

To receive monthly alerts about the Closer Look series, please email the Stanford Corporate Governance Research Program at corpgovernance@gsb.stanford.edu. You can also follow more corporate governance news on Twitter: @StanfordCorpGov .  To view the entire collection of  Stanford Closer Looks please click here.

 CGRP16 – Seven Myths of Corporate Governance (PDF) by Professor David F. Larcker and Brian Tayan, MBA '03

In recent years, there has been much discussion over how to improve governance systems broadly. In the process, certain myths have developed that continue to be accepted, despite a lack of robust supporting evidence.

These myths include the beliefs that:

1. The structure of the board always tells you something about the quality of the board

2. CEOs in the U.S. are overpaid

3. Pay for performance does not exist in CEO compensation contracts

4. Companies are prepared to replace the CEO if needed

5. Regulation improves corporate governance

6. The voting recommendations of proxy advisory firms are correct

7. Best practices are the solution to bad governance

We examine each of these myths in closer detail and explain why they are false.

So long as these myths are accepted by practitioners and the public, how can we expect managerial behavior and firm performance to improve? Read the attached Closer Look and let us know what you think!

Larcker and Tayan are the authors of recently published book: Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences, FT Press

Topics, Issues and Controversies in Corporate Governance: The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. To see the full series of  Stanford Closer Looks click here.

• Executive Equity Ownership (PowerPoint)      

  In theory:          

• Executives who hold equity in the companies they manage have greater incentive to build economic value. 
• Equity ownership should discourage self-interested behavior.
• Actions that impair firm value would inflict corresponding damage to the executive’s personal wealth.
• As such, equity ownership is expected to mitigate agency problems.