_________________________________________________________________
SOCIAL SCIENCE RESEARCH NETWORK
E M P L O Y E E B E N E F I T S , C O M P E N S A T I O N
& P E N S I O N L A W
Vol. 7, No. 27: September 28, 2006
Editors: PAMELA J. PERUN
Urban Institute
PAMELA@PLANETNOW.COM
_________________________________________________________________
BROWSE all abstracts in this subject:
http://www.ssrn.com/link/benefits-compensation-pension-law.html
SEARCH entire eLibrary at: http://ssrn.com/search
If this document is misaligned, please set type face to a
non-proportional font such as Courier 10.
_________________________________________________________________
Topic of This Issue:
Executive Compensation
_________________________________________________________________
T A B L E O F C O N T E N T S
"Paying CEOs in Bankruptcy: Executive Compensation When Agency
Costs are Low"
M. TODD HENDERSON
University of Chicago - Law School
"The Group Dynamics Theory of Executive Compensation"
MICHAEL B. DORFF
Southwestern University School of Law
"Insurer Reserve Error and Executive Compensation"
DAVID L. ECKLES
University of Georgia - Department of Insurance, Legal
Studies, Real Estate
MARTIN HALEK
University of Georgia - Department of Insurance, Legal
Studies, Real Estate
"Executive Compensation in Socially Responsible Firms"
MELISSA B. FRYE
Affiliation Unknown
EDWARD F. NELLING
Drexel University - Department of Finance
"The Evolution of Shareholder Voting for Executive Compensation
Schemes"
ANGELA MORGAN
Clemson University - Department of Finance
ANNETTE B. POULSEN
University of Georgia - Department of Banking and
Finance
JACK G. WOLF
Clemson University - Department of Finance
"Fair Pay for Chief Executive Officers"
JAMES D. COX
Duke University School of Law
_________________________________________________________________
"Paying CEOs in Bankruptcy: Executive Compensation When Agency
Costs are Low"
U Chicago Law & Economics, Olin Working Paper No. 306
Contact: M. TODD HENDERSON
University of Chicago - Law School
Email: mhenders@law.uchicago.edu
Auth-Page: http://ssrn.com/author=401289
Full Text: http://ssrn.com/abstract=927081
ABSTRACT: Conventional wisdom suggests that high agency costs
explain the (excessive) amounts and (inefficient) forms of CEO
compensation. This paper offers a simple empirical test of this
claim and the reform proposals that follow from it, by looking at
pay practices in firms under financial distress, where agency
costs are dramatically reduced. When a firm files for Chapter 11
or privately works out its debt with lenders, sophisticated
investors consolidate ownership interests into a few large
positions replacing diffuse and disinterested shareholders. These
investors, be they banks or vulture investors, effectively
control the debtor during the reorganization process. In
addition, all the other players in compensation decisions -
boards, courts, and other stakeholders - play a much more active
role than for healthy firms. In other words, agency costs are
much lower in Chapter 11 firms. Accordingly, if pay practices
look the same in bankruptcy as they do in healthy firms, we can
conclude that either (1) the current practices are efficient, or
(2) that proposals to change executive compensation by reducing
agency costs are incomplete. The data support one of these
hypotheses: amounts and forms of compensation remain largely
unchanged as agency costs are reduced, and look similar to those
of healthy firms.Please enter abstract text here.
______________________________
"The Group Dynamics Theory of Executive Compensation"
Contact: MICHAEL B. DORFF
Southwestern University School of Law
Email: mdorff@swlaw.edu
Auth-Page: http://ssrn.com/author=352352
Full Text: http://ssrn.com/abstract=930124
ABSTRACT: The corporate governance debate has focused recently on
executive compensation. While defenders of the status quo assert
that CEO compensation - and corporate governance generally - is
efficient, critics contend that boards have been captured by
powerful CEOs who demand excessive pay unconditioned on their
performance. Both sides argue that the evidence garnered from CEO
compensation justifies their positions on legal reform of
corporate governance as a whole. Defenders of the status quo
argue that the system works well as is, as demonstrated by the
enormous success of U.S. corporations. Critics concerned about
managerial power propose reforms that will increase board's
responsiveness to shareholders, enhancing the board's willingness
to act as a check against untrammeled CEO power. In this Article,
I take as given that many forms of CEO compensation are less
effective than they might be and explore an alternative
explanation. Advancing a new, Group Dynamics Theory, I argue that
the problems with CEO compensation in public corporations may be
caused by the decision-making flaws rooted in group dynamics,
particularly groupthink and social cascades. Psychology, rather
than economics, may be chiefly to blame. I also propose a very
different type of solution, one that targets and improves boards'
decision-making processes.
______________________________
"Insurer Reserve Error and Executive Compensation"
Contact: DAVID L. ECKLES
University of Georgia - Department of Insurance,
Legal Studies, Real Estate
Email: deckles@uga.edu
Auth-Page: http://ssrn.com/author=77726
Co-Author: MARTIN HALEK
University of Georgia - Department of Insurance,
Legal Studies, Real Estate
Email: mhalek@uga.edu
Auth-Page: http://ssrn.com/author=77723
Full Text: http://ssrn.com/abstract=928681
ABSTRACT: This paper investigates the possibility that managers
of insurance firms have an incentive to manipulate accounting
results in order to maximize their total compensation. Insurance
company executives are in a relatively unique position in that
they may be able to manipulate their total compensation by
exercising discretion in loss reserve practices. We find evidence
that managers whose compensation packages are more bonus-laden
are associated with larger loss reserve errors. We further find
that managers who exercise options over the course of the year
are positively related to under-reserving for incurred losses in
the current and prior year. This is consistent with reserving
practices of managers anticipating the exercising of options to
maximize wealth.
______________________________
"Executive Compensation in Socially Responsible Firms"
Corporate Governance: An International Review, Vol. 14, No.
5, pp. 446-455, September 2006
Author: MELISSA B. FRYE
Affiliation Unknown
Auth-Page: http://ssrn.com/author=575910
Contact: EDWARD F. NELLING
Drexel University - Department of Finance
Email: NELLING@DREXEL.EDU
Auth-Page: http://ssrn.com/author=16631
Full Text: http://ssrn.com/abstract=930768
ABSTRACT: This study examines chief executive officer (CEO)
compensation and turnover in socially responsible (SR) firms. We
compare characteristics of SR firms with a matched sample of
firms based on industry and size. Analysis of CEO compensation
indicates that the link between CEO pay and firm performance is
weaker for SR firms than for non-SR firms. CEO turnover tests
indicate that SR firms are more likely to experience CEO turnover
following poor performance. Stock option grants to CEOs of SR
firms do not appear to result in future risk-taking behaviour,
whereas such grants are significantly related to future risk at
non-SR firms.
______________________________
"The Evolution of Shareholder Voting for Executive Compensation
Schemes"
Journal of Corporate Finance, Vol. 12, pp. 715-737, 2006
Contact: ANGELA MORGAN
Clemson University - Department of Finance
Email: am@clemson.edu
Auth-Page: http://ssrn.com/author=256864
Co-Author: ANNETTE B. POULSEN
University of Georgia - Department of Banking and
Finance
Email: apoulsen@terry.uga.edu
Auth-Page: http://ssrn.com/author=16496
Co-Author: JACK G. WOLF
Clemson University - Department of Finance
Email: jackw@clemson.edu
Auth-Page: http://ssrn.com/author=200368
Abstract: http://ssrn.com/abstract=928895
ABSTRACT: We examine shareholder voting on management-sponsored
compensation proposals from 1992 through 2003 to determine how
voting has evolved as a result of changes in the corporate
governance environment. We investigate three questions: have
regulatory changes and changes in investor sentiment affected
voting; do the same factors appear to influence voting over time
and has the impact of the various factors changed over time; and
do additional factors such as the level of compensation and
alternate definitions of dilution influence voting support? We
find evidence of changing trends in voting, that shareholders
have become more sensitive to potentially harmful plan
provisions, and that additional factors do affect voting.
______________________________
"Fair Pay for Chief Executive Officers"
Duke Law School Legal Studies Paper No. 119
LAW AND CLASS IN AMERICA: TRENDS SINCE THE COLD WAR,
Chapter 6, NYU Press, 2006
Contact: JAMES D. COX
Duke University School of Law
Email: JDC@FACULTY.LAW.DUKE.EDU
Auth-Page: http://ssrn.com/author=46082
Full Text: http://ssrn.com/abstract=926369
ABSTRACT: This article links the growing income disparity in
America to a possible metric that can be used to better assess
the appropriate level of executive compensation. The article
reviews the intellectual, commercial, cultural, and judicial
forces that have each contributed toward the significant rise in
executive compensation. Of particular note is the unqualified
failure of courts and outside directors to provide meaningful
supervision of executive compensation. This failure in part
reflects the failure of society to develop guidance regarding
what is the appropriate level of compensation for executives of
public companies. The article concludes by reviewing evidence
that income disparity within the firm, particularly the gap
between executives and other employees within the organization
are associated with firms that have high employee turnover, poor
morale, and lower productivity levels than in firms where
disparities are not as great. Herein lies the suggested standard
that can be used for determining what is fair pay for CEOs and
others.