Too Much Is Not Enough: Incentives in Executive Compensation

Hardcover | July 17, 2012

byRobert W. Kolb

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The scholarly literature on executive compensation is vast. As such, this literature provides an unparalleled resource for studying the interaction between the setting of incentives (or the attempted setting of incentives) and the behavior that is actually adduced. From this literature, thereare several reasons for believing that one can set incentives in executive compensation with a high rate of success in guiding CEO behavior, and one might expect CEO compensation to be a textbook example of the successful use of incentives. Also, as executive compensation has been studiedintensively in the academic literature, we might also expect the success of incentive compensation to be well-documented. Historically, however, this has been very far from the case. In Too Much Is Not Enough, Robert W. Kolb studies the performance of incentives in executive compensation across many dimensions of CEO performance. The book begins with an overview of incentives and unintended consequences. Then it focuses on the theory of incentives as applied to compensationgenerally, and as applied to executive compensation particularly. Subsequent chapters explore different facets of executive compensation and assess the evidence on how well incentive compensation performs in each arena. The book concludes with a final chapter that provides an overall assessment ofthe value of incentives in guiding executive behavior. In it, Kolb argues that incentive compensation for executives is so problematic and so prone to error that the social value of giving huge incentive compensation packages is likely to be negative on balance. In focusing on incentives, the book provides a much sought-after resource, for while there are a number of books on executive compensation, none focuses specifically on incentives. Given the recent fervor over executive compensation, this unique but logical perspective will garner much interest. Andwhile the literature being considered and evaluated is technical, the book is written in a non-mathematical way accessible to any college-educated reader.

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The scholarly literature on executive compensation is vast. As such, this literature provides an unparalleled resource for studying the interaction between the setting of incentives (or the attempted setting of incentives) and the behavior that is actually adduced. From this literature, thereare several reasons for believing that one c...

Robert W. Kolb is Professor of Finance and Frank W. Considine Chair of Applied Ethics at Loyola University Chicago. He has been professor of finance at the University of Florida, Emory University, the University of Miami, and the University of Colorado, and has published more than 20 books, including Lessons from the Financial Crisis: ...

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Format:HardcoverDimensions:240 pages, 9.25 × 6.12 × 0.98 inPublished:July 17, 2012Publisher:Oxford University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0199829586

ISBN - 13:9780199829583

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Table of Contents

Preface1. The Magnitude and Structure of Executive CompensationThe Magnitude of CEO CompensationThe Structure of Executive CompensationSalaryBonuses and Long-Term Incentive PlansRestricted Stock AwardsExecutive Stock Option (ESO) AwardsOther Forms of Compensation2. Corporate Governance, Agency Problems, and Executive CompensationCorporate GovernanceAgency Theory and Incentive AlignmentCorporate Governance, Incentive Alignment, and the Managerial Power HypothesisThe Levers of Managerial PowerLimits to Pay on the Managerial Power HypothesisAssessing the Conceptual Conflict Between the Agency-Theoretic and Managerial Power Views of Executive CompensationWhat about Ethics, Duty, and Justice?Fiduciary DutyExecutive Compensation and Distributive Justice3. The Incentive Structure of Executive CompensationThe Incentive Revolution and Executive CompensationSalaryBonusesRestricted Stock and Performance SharesExecutive Stock OptionsEquity Compensation: Retaining the Employees You Have, and Attracting the Ones You WantDifferent Instruments as Tools of Incentive Compensation4. Executive Stock Options and the Incentives They CreateESO Incentives, Firm Practices, and the Effect of Accounting RulesOption Pricing ModelsOption Valuation Effects of Individual Option ParametersThe Option Pricing Model and IncentivesExecutive Stock Option Design, Management, and IncentivesWhat Exercise Price?Repricing and Reloading Executive Stock OptionsThe CEO's Utility and the Desire for ESOs5. Executive Stock Option Programs: The Behavior of CEOs, Firms, and InvestorsCEO Wealth, Pay, and PerformanceExercise of ESOsBOX 1: Detecting Abnormal Stock Market PerformanceUnwinding Incentives6. Executive Incentives and Risk-TakingEquity Compensation and the CEO's Risk AppetiteExecutive Compensation and the Risk-Taking Behavior of CEOsIncentive Compensation, Risk-Taking, and the Financial Crisis of 2007-20097. Incentive Compensation and the Management of the FirmIncentive Compensation and the Firm's Investment ProgramCEO Incentives and the Firm's Financing DecisionsCompensation Incentives, Dividends, and Share RepurchasesCorporate Mergers, Acquisitions, and LiquidationsCompensation Incentives and Corporate Risk ManagementCompensation Incentives and Corporate Disclosures8. Perverse Incentive Effects: Executives Behaving BadlyEarnings ManagementOption Games and ExploitationOption Games: A Warning About Incentives in Executive Compensation9. Incentives in Executive Compensation: A Final AssessmentIncentive Compensation and the Level of Executive PayNew Legislation and the Shaping of IncentivesHow Dysfunctional is Executive Pay?On Balance, Is Incentive Compensation Beneficial?To Improve Executive Compensation, Improve Corporate GovernanceExecutive Pay, Continuing Inequality, and the Question of JusticeAppendix: Binomial Valuation Method for Executive Stock OptionsNotesReferencesIndex