Executive Compensation/title> </head> <body> ______________________________ <div style="direction:ltr"> <wbr>______________________________<wbr>_____<br/> <br/> SOCIAL SCIENCE RESEARCH NETWORK<br/> <br/> EMPLOYEE BENEFITS, COMPENSATION & PENSION LAW ABSTRACTS<br/> Sponsored by Pension Governance, LLC<br/> Vol. 8, No. 29: August 30, 2007<br/> <br/> Editor: PAMELA J. PERUN<br/> Policy Director, Aspen Institute - Initiative on<br/> Financial Security<br/> <a href="mailto:PAMELA@PLANETNOW.COM">PAMELA@PLANETNOW.COM</a><br/> ______________________________<wbr>______________________________<wbr>_____<br/> <br/> BROWSE all abstracts in this subject:<br/> <a href="http://www.ssrn.com/link/benefits-compensation-pension-law.html" target="_blank">http://www.ssrn.com/link<wbr>/benefits-compensation-pension<wbr>-law.html</a><br/> <br/> SEARCH entire eLibrary at: <a href="http://ssrn.com/search" target="_blank">http://ssrn.com/search</a><br/> <br/> If this document is misaligned, please set type face to a<br/> non-proportional font such as Courier 10.<br/> ______________________________<wbr>______________________________<wbr>_____<br/> <br/> Pension Governance, LLC is an independent information and<br/> business consulting services and research/analysis company for<br/> the pension community. News, interviews, white papers, surveys,<br/> training and industry events provide pension decision-makers,<br/> their attorneys, actuaries, auditors, consultants, money managers<br/> and third party administrators with information that is<br/> straightforward and created with investment fiduciary best<br/> practices in mind. To learn more, please visit<br/> <a href="http://www.pensiongovernance.com/" target="_blank">http://www.pensiongovernance<wbr>.com</a>,<br/> <a href="http://www.pensionriskmatters.com/" target="_blank">http://www.pensionriskmatters<wbr>.com</a> (blog) and<br/> <a href="http://www.pensionlitigationdata.com/" target="_blank">http://www.pensionlitigationda<wbr>ta.com</a>.<br/> <br/> Topic of This Issue:<br/> Executive Compensation<br/> ______________________________<wbr>______________________________<wbr>_____<br/> <br/> T A B L E O F C O N T E N T S<br/> <br/> "Two Goals for Executive Compensation Reform"<br/> BRETT MCDONNELL<br/> University of Minnesota Law School<br/> <br/> "Unpacking Backdating: Economic Analysis and Observations on the<br/> Stock Option Scandal"<br/> DAVID I. WALKER<br/> Boston University School of Law<br/> <br/> "Perspectives: Executive Compensation: Much Ado About Nothing?"<br/> DENISE DICKINS<br/> Florida Atlantic University - School of Accounting<br/> BOB HOUMES<br/> Florida Atlantic University - School of Accounting<br/> <br/> "Perspectives: On the Use (and Abuse) of Stock Option Grants"<br/> RANDALL A. HERON<br/> Indiana University<br/> ERIK LIE<br/> University of Iowa - Henry B. Tippie College of Business<br/> TOD PERRY<br/> Indiana University - Kelley School of Business<br/> <br/> "Expensing Executive Stock Options: The Agency Problem and<br/> Structure of Management Compensation"<br/> FAYEZ A. ELAYAN<br/> Brock University - Accounting<br/> THOMAS O. MEYER<br/> Southeastern Louisiana University - Department of<br/> Marketing and Finance<br/> JENNIFER LI<br/> Brock University<br/> <br/> "Stock and Option Proportions in Executive Compensation"<br/> PHELIM P. BOYLE<br/> Wilfrid Laurier University - School of Business &<br/> Economics<br/> RANJINI JHA<br/> University of Waterloo - School of Accountancy<br/> SHANNON KENNEDY<br/> University of Waterloo - Department of Applied<br/> Mathematics<br/> WEIDONG TIAN<br/> University of Waterloo - Department of Statistics and<br/> Actuarial Science<br/> <br/> "Director Compensation and CEO Bargaining Power in REITs"<br/> ZHILAN FENG<br/> Union College<br/> CHINMOY GHOSH<br/> University of Connecticut - School of Business<br/> C.F. SIRMANS<br/> University of Connecticut - Center for Real Estate and<br/> Urban Economic Studies<br/> ______________________________<wbr>______________________________<wbr>_____<br/> <br/> "Two Goals for Executive Compensation Reform"<br/> New York Law School Law Review, Vol. 52, 2007<br/> Minnesota Legal Studies Research Paper No. 07-34<br/> <br/> <br/> Contact: BRETT MCDONNELL<br/> University of Minnesota Law School<br/> Email: <a href="mailto:bhm@umn.edu">bhm@umn.edu</a><br/> Auth-Page: <a href="http://ssrn.com/author=94918" target="_blank">http://ssrn.com/author=94918</a><br/> <br/> Full Text: <a href="http://ssrn.com/abstract=1008356" target="_blank">http://ssrn.com/abstract<wbr>=1008356</a><br/> <br/> ABSTRACT: Most corporate law scholars who suggest reforming<br/> executive compensation worry about corporate governance problems<br/> that arise out of poor compensation design. Most politicians who<br/> suggest reforming executive compensation seem as or more worried<br/> about growing economic inequality. This essay briefly considers<br/> two arguments justifying legal scholars in ignoring the concern<br/> with inequality. The first argument says that we should address<br/> inequality concerns only through tax and transfer policy. This<br/> essay responds that politics may dictate sometimes trying to<br/> reduce inequality through other means as well. The second<br/> argument claims that high pay for the top executives of public<br/> corporations has played only a small role in the growth of<br/> economic inequality. This essay finds this argument much more<br/> persuasive, but suggests reasons why further empirical<br/> investigation may still show that reforming executive<br/> compensation may be a modestly important part of a broader<br/> package of reforms to reduce inequality.<br/> ______________________________<br/> <br/> "Unpacking Backdating: Economic Analysis and Observations on the<br/> Stock Option Scandal"<br/> Boston University Law Review, Vol. 87, p. 561, 2007<br/> Boston Univ. School of Law Working Paper No. 07-17<br/> <br/> <br/> Contact: DAVID I. WALKER<br/> Boston University School of Law<br/> Email: <a href="mailto:diwalker@bu.edu">diwalker@bu.edu</a><br/> Auth-Page: <a href="http://ssrn.com/author=189230" target="_blank">http://ssrn.com/author=189230</a><br/> <br/> Full Text: <a href="http://ssrn.com/abstract=1005678" target="_blank">http://ssrn.com/abstract<wbr>=1005678</a><br/> <br/> ABSTRACT: The corporate stock option backdating scandal has<br/> dominated business page headlines since the summer of 2006. The<br/> SEC has launched investigations of more than one hundred<br/> companies with respect to the timing and pricing of stock options<br/> granted during the boom years of the late 1990s and early 2000s,<br/> and the number of firms caught up in the scandal continues to<br/> increase. This Article contributes to our understanding of the<br/> backdating phenomenon by analyzing the economics of backdating<br/> and the characteristics of the firms under investigation. Its<br/> main points are the following: First, given the high volatilities<br/> of the stocks of the technology companies that dominate the list<br/> of firms under investigation and the fact that options granted to<br/> executives and employees typically may not be exercised for<br/> several years, press reports that focus on the size of the strike<br/> price ?discounts? achieved by backdating significantly overstate<br/> the impact on the value per share of backdated options. In some<br/> cases, reducing the strike price by a dollar per share by<br/> backdating increased the Black-Scholes value of the option by<br/> less than twenty cents per share. Second, backdating dramatically<br/> reduced the apparent value of options, which reduced the total<br/> level of executive compensation reported to shareholders.<br/> However, because the size of executive stock option grants often<br/> is determined by first establishing the value to be delivered and<br/> then ?backing into? the number of shares to be covered by the<br/> option, reducing the apparent value of option shares may have<br/> substantially increased the size and economic value of some<br/> backdated executive option grants. Third, comparison of<br/> semiconductor firms under investigation for backdating with peer<br/> companies that are not suggests an association between backdating<br/> and the use of options in compensating non-executive employees.<br/> This Article considers the effects of and several possible<br/> explanations for backdating non-executive options, including<br/> reducing apparent rank and file compensation. Finally, this<br/> Article argues that the backdating phenomenon is not an<br/> accounting scandal. Backdating has accounting consequences, but<br/> it is unlikely to have been accounting driven.<br/> ______________________________<br/> <br/> "Perspectives: Executive Compensation: Much Ado About Nothing?"<br/> Financial Analysts Journal, Vol. 63, No. 3, pp. 28-31, 2007<br/> <br/> <br/> Author: DENISE DICKINS<br/> Florida Atlantic University - School of Accounting<br/> Auth-Page: <a href="http://ssrn.com/author=490139" target="_blank">http://ssrn.com/author=490139</a><br/> <br/> Contact: BOB HOUMES<br/> Florida Atlantic University - School of Accounting<br/> Email: <a href="mailto:rhoumes@gate.net">rhoumes@gate.net</a><br/> Auth-Page: <a href="http://ssrn.com/author=358427" target="_blank">http://ssrn.com/author=358427</a><br/> <br/> Abstract: <a href="http://ssrn.com/abstract=991952" target="_blank">http://ssrn.com/abstract<wbr>=991952</a><br/> <br/> ABSTRACT: Recent concerns about the level of executive<br/> compensation led to revisiting the question of whether highly<br/> compensated corporate employees earn their pay. Several measures<br/> of company performance indicate that companies with the most<br/> highly compensated employees perform only in a manner consistent<br/> with other companies. Our results provide support for those who<br/> have recently expressed dismay over compensation levels.<br/> ______________________________<br/> <br/> "Perspectives: On the Use (and Abuse) of Stock Option Grants"<br/> Financial Analysts Journal, 2007<br/> <br/> <br/> Author: RANDALL A. HERON<br/> Indiana University<br/> Email: <a href="mailto:rheron@iupui.edu">rheron@iupui.edu</a><br/> Auth-Page: <a href="http://ssrn.com/author=289484" target="_blank">http://ssrn.com/author=289484</a><br/> <br/> Co-Author: ERIK LIE<br/> University of Iowa - Henry B. Tippie College of<br/> Business<br/> Email: <a href="mailto:erik-lie@uiowa.edu">erik-lie@uiowa.edu</a><br/> Auth-Page: <a href="http://ssrn.com/author=182733" target="_blank">http://ssrn.com/author=182733</a><br/> <br/> Co-Author: TOD PERRY<br/> Indiana University - Kelley School of Business<br/> Email: <a href="mailto:rtperry@iupui.edu">rtperry@iupui.edu</a><br/> Auth-Page: <a href="http://ssrn.com/author=33083" target="_blank">http://ssrn.com/author=33083</a><br/> <br/> Abstract: <a href="http://ssrn.com/abstract=991928" target="_blank">http://ssrn.com/abstract<wbr>=991928</a><br/> <br/> ABSTRACT: Recently, a significant number of companies have come<br/> under public and regulatory scrutiny for backdating stock option<br/> grants. This article discusses factors that influenced the<br/> dramatic increase in stock option compensation and summarizes the<br/> academic research that led to the discovery of backdating. The<br/> information gained in this early stage of investigation provides<br/> some insight into the number of companies and potential costs of<br/> option backdating. Increased transparency and timely disclosure<br/> should curtail grant-date manipulation, but the credibility of<br/> the disclosure system requires active enforcement of the rules<br/> and standards. Investors need accurate, complete disclosures of<br/> executive compensation to hold boards of directors accountable<br/> for executive compensation.<br/> ______________________________<br/> <br/> "Expensing Executive Stock Options: The Agency Problem and<br/> Structure of Management Compensation"<br/> <br/> Contact: FAYEZ A. ELAYAN<br/> Brock University - Accounting<br/> Email: <a href="mailto:fayez.elayan@brocku.ca">fayez.elayan@brocku.ca</a><br/> Auth-Page: <a href="http://ssrn.com/author=151150" target="_blank">http://ssrn.com/author=151150</a><br/> <br/> Co-Author: THOMAS O. MEYER<br/> Southeastern Louisiana University - Department of<br/> Marketing and Finance<br/> Email: <a href="mailto:Thomas.Meyer@selu.edu">Thomas.Meyer@selu.edu</a><br/> Auth-Page: <a href="http://ssrn.com/author=151153" target="_blank">http://ssrn.com/author=151153</a><br/> <br/> Co-Author: JENNIFER LI<br/> Brock University<br/> Email: <a href="mailto:Jennifer.Li@BrockU.CA">Jennifer.Li@BrockU.CA</a><br/> Auth-Page: <a href="http://ssrn.com/author=191116" target="_blank">http://ssrn.com/author=191116</a><br/> <br/> Full Text: <a href="http://ssrn.com/abstract=987698" target="_blank">http://ssrn.com/abstract<wbr>=987698</a><br/> <br/> ABSTRACT: This research examines the valuation effect and the<br/> factors associated with firms' decisions to expense executive<br/> stock options, as well as determinants of market reaction to<br/> expensing announcements. The likelihood of expensing is found to<br/> be higher for firms subject to fewer agency problems and having a<br/> ?share-holder friendly? corporate governance structure. These<br/> results suggest that the decision to expense is heavily<br/> influenced by the extent of discipline, monitoring, and how<br/> closely the interests of management and stockholders are aligned.<br/> <br/> The mean and median announcement-period returns are not found to<br/> be significantly different from zero. However, the<br/> post-announcement period abnormal returns are negative and<br/> statistically significant. The cross-sectional analysis provides<br/> support for the prediction that the market reaction to expensing<br/> has a differential valuation effect related to the level and<br/> structure of management compensation. Namely, companies with a<br/> higher percentage of long-term compensation (to total<br/> compensation) and a higher percentage of total compensation (to<br/> total assets) have negative, or less positive, average abnormal<br/> returns.<br/> <br/> These results are consistent with the first part of the argument<br/> advanced by the proponents of expensing options, that recognition<br/> causes reported earnings to decline and share prices to follow.<br/> The second part of their argument is that boards of directors<br/> will then be less inclined to grant excessive options is not<br/> supported. The perceived benefits (if capitalized in share price<br/> at announcement time) of the boards' action in terms of more<br/> transparency, is either absent or does not offset the negative<br/> impact of lower earnings and share prices of expensing firms.<br/> ______________________________<br/> <br/> "Stock and Option Proportions in Executive Compensation"<br/> <br/> Author: PHELIM P. BOYLE<br/> Wilfrid Laurier University - School of Business &<br/> Economics<br/> Email: <a href="mailto:pboyle@watarts.uwaterloo.ca">pboyle@watarts.uwaterloo.ca</a><br/> Auth-Page: <a href="http://ssrn.com/author=57402" target="_blank">http://ssrn.com/author=57402</a><br/> <br/> Contact: RANJINI JHA<br/> University of Waterloo - School of Accountancy<br/> Email: <a href="mailto:rsivakumar@uwaterloo.ca">rsivakumar@uwaterloo.ca</a><br/> Auth-Page: <a href="http://ssrn.com/author=118931" target="_blank">http://ssrn.com/author=118931</a><br/> <br/> Co-Author: SHANNON KENNEDY<br/> University of Waterloo - Department of Applied<br/> Mathematics<br/> Email: <a href="mailto:jskenned@math.uwaterloo.ca">jskenned@math.uwaterloo.ca</a><br/> Auth-Page: <a href="http://ssrn.com/author=825094" target="_blank">http://ssrn.com/author=825094</a><br/> <br/> Co-Author: WEIDONG TIAN<br/> University of Waterloo - Department of Statistics<br/> and Actuarial Science<br/> Email: <a href="mailto:wdtian@uwaterloo.ca">wdtian@uwaterloo.ca</a><br/> Auth-Page: <a href="http://ssrn.com/author=645912" target="_blank">http://ssrn.com/author=645912</a><br/> <br/> Full Text: <a href="http://ssrn.com/abstract=991943" target="_blank">http://ssrn.com/abstract<wbr>=991943</a><br/> <br/> ABSTRACT: There is controversy about the relative merits of stock<br/> and options in executive compensation in terms of their<br/> efficiency in providing incentives. Some observers contend that<br/> stock is the more efficient mechanism for providing the desired<br/> incentives, while others reach the opposite conclusion. There is<br/> currently no consensus on this point in the literature. This<br/> paper proposes a simple model to address this issue. We conclude<br/> that there is an important role for both stock and options in the<br/> optimal contract. The model indicates that firms with higher<br/> volatility should use more options in compensating their<br/> executives.<br/> ______________________________<br/> <br/> "Director Compensation and CEO Bargaining Power in REITs"<br/> Journal of Real Estate Finance and Economics, Vol. 35, No.<br/> 3, 2007<br/> <br/> <br/> Contact: ZHILAN FENG<br/> Union College<br/> Email: <a href="mailto:fengz@union.edu">fengz@union.edu</a><br/> Auth-Page: <a href="http://ssrn.com/author=354256" target="_blank">http://ssrn.com/author=354256</a><br/> <br/> Co-Author: CHINMOY GHOSH<br/> University of Connecticut - School of Business<br/> Email: <a href="mailto:chinmoy.ghosh@business.uconn.edu">chinmoy.ghosh@business.uconn<wbr>.edu</a><br/> Auth-Page: <a href="http://ssrn.com/author=403970" target="_blank">http://ssrn.com/author=403970</a><br/> <br/> Co-Author: C.F. SIRMANS<br/> University of Connecticut - Center for Real Estate<br/> and Urban Economic Studies<br/> Email: <a href="mailto:cf.sirmans@business.uconn.edu">cf.sirmans@business.uconn.edu</a><br/> Auth-Page: <a href="http://ssrn.com/author=16466" target="_blank">http://ssrn.com/author=16466</a><br/> <br/> Abstract: <a href="http://ssrn.com/abstract=1009574" target="_blank">http://ssrn.com/abstract<wbr>=1009574</a><br/> <br/> ABSTRACT: We analyze director compensation for Real Estate<br/> Investment Trusts (REITs) and investigate the relations between<br/> director compensation and other measures of the board<br/> independence and board monitoring. Using 136 REITs in 2001, we<br/> find that REITs that pay higher equity-based compensation to<br/> their board members are associated with higher financial<br/> performance. Our data indicate that board equity-based<br/> compensation is positively related to the existence of an<br/> independent nomination committee, however, it has no significant<br/> relationship with board size, proportion of outside directors,<br/> CEO duality and CEO tenure and ownership. </div> </body> </html>