Compensation structures for the better alignment of management and shareholder interests
Summary :
Table of Contents
- Introduction
- Topic Introduction
- Importance of issue
- Clarification of question and specific model company
- Compensation options
- Guaranteed salary â€" Benefits and downsides
- Bonuses â€" Benefits and downsides
- Stock options â€" Benefits and downsides
- Stock appreaciation rights â€" Benefits and downsides
- Restricted stock â€" Benefits and downsides
- Academic research
- Presentation of academic research on topic
- Suggested compensation guidelines
- Conclusion
Abstract
In recent years there has been much controversy surrounding the supposed 'high' levels of executive compensation in large publicly traded firms. CEO pay packages, measured as multiples of average non-corporate worker pay, reached a peak of 525 times in 2000. Pay packages have also grown far more complex as bewildering combinations of stock, options, deferred compensation, bonuses, golden handshakes and parachutes have been employed. The goal, however, of all these tools is clear: it is to attract and retain top management talent whilst aligning their interests with owners in the pursuit of maximum shareholder returns. This paper will discuss the common forms of compensation available for a company and the advantages and disadvantages of each compensation option. We will then analyze the existing academic literature on the topic of executive pay and alignment of interests. Finally, we will propose what we believe to be the ideal mix of compensation vehicles that balance the interests of shareholders and management.
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