Underwater Options and the Dynamics of Executive Pay-to-Performance Sensitivities

We empirically analyze the dynamics of executives' pay‐to‐performance sensitivities. Option pay‐to‐performance sensitivities become weaker as options fall underwater, often leading to pressures to reprice options or restore pay‐to‐performance sensitivity in other ways. Building a detailed data set on executives' portfolios of stock and options, we find that the responsiveness of pay‐to‐performance sensitivities (created by all executive holdings of stock and options) to changes in stock price is large. The elasticity of pay‐to‐performance sensitivities with respect to stock price decreases is about 0.7 and is larger for high‐option executives and for executives with high percentages of options already underwater. The dominant mechanism through which companies offset declines in option pay‐to‐performance sensitivities is larger option grants following stock price declines; on average, these larger grants restore approximately 40% of the stock‐price‐induced pay‐to‐performance sensitivity declines. Option repricings are inconsequential in this regard, despite the attention they have attracted. In looking at positive returns, we find the reverse: higher returns both directly increase pay‐to‐performance sensitivities and lead to larger option grants, which raise pay‐to‐performance sensitivities further. Thus, option grants to executives tend to be largest following large stock price increases or large stock price decreases.     

Bargaining Theory Meets Interest‐Based Negotiations: A Case Study1

This is a case study of the 2005 national contract negotiations between Kaiser Permanente and the Coalition of Kaiser Permanente Unions. Given the scale and complexity of these negotiations, their successful completion provides an exemplar for collective bargaining in this country. In 1997 Kaiser Permanente and the Coalition of Kaiser Permanente Unions formed a labor management partnership, and negotiations were structured around the principles of interest‐based negotiation (IBN). Drawing on direct observation of all parts of the bargaining process, interviews with individuals from Kaiser and the Coalition of Unions, and surveys we conducted after bargaining was completed, we conclude that the parties employed a mix of interest‐based and traditional negotiation processes across an array of integrative and distributive issues. We find that IBN techniques were used extensively and successfully to reach mutually satisfying agreements when the parties shared interests. When interests were in greater conflict, the parties resorted to more traditional, positional tactics to reach resolution. Strong intraorganizational conflicts limited the use of IBN and favored the use of more traditional positional bargaining. While a high level of trust enabled and supported the use of IBN, tensions that developed limited the use of IBN and required surfacing and release before either IBN or more traditional positional processes could proceed effectively. The use of IBN tools helped the parties apply the principles underlying the partnership in which these negotiations were embedded. We conclude that IBN served as a way of applying or operationalizing integrative bargaining and affected the process dynamics in ways the Walton and McKersie theory predicted. As such we see IBN as techniques that neither displace nor render obsolete other aspects of bargaining theory or practice but that show considerable promise for helping collective bargaining to address the complex issues and challenges found in contemporary employment relationships.     

THE IMPACT OF EUROPEAN CONSUMER LAW IN THE UNITED KINGDOM*

In this paper the authors describe the consequences of European consumer law for British consumers. After an analysis of some of the difficulties which have been faced by the United Kingdom in coming to terms with its new-found status within a federal system, the article goes on to describe the progress which has been made with the programme of implementation. The third part looks at some EEC proposals which are in the pipeline at the moment and comments on some of the consequences which the prospect of EEC legislation can have for domestic reform. Finally, the authors examine the actual enforcement of EEC consumer law through the criminal process and the effects upon civil processes.     

The Cognitive Consumer Education Knowledge of Prospective Teachers: A National Assessment

A nationwide assessment of the cognitive consumer education knowledge of prospective teachers being trained for all academic disciplines included 84 institutions of higher education and provided usable data on 4,309 respondents. The sample scored less than sixty percent correct on the Test of Consumer Competencies. Prospective teachers were most knowledgeable in the areas of Recreation, Clothing, and The Individual in the Marketplace; they scored lowest in the areas of Taxes, Food, and Savings and Investment. Those majoring in Social Studies, History or Geography, Science, and Home Economics scored highest on the average while those majoring in Physical Education, Art and Music, and Special Education scored lowest. The prospective teachers who had completed a consumer education related course, approximately twelve percent of the total, scored higher than those who had not.     

COST-EFFECTIVENESS OF CONSERVATION PROGRAMS: THE HOOD RIVER EXPERIMENT

Economic cost-effectiveness analysis is a systematic approach to assessing benefits and costs associated with different actions. This analysis, as applied to energy conservation programs, is complicated greatly by the existence of intangible benefits and costs. A further complication occurs when the input values are uncertain. Such inputs include the useful lives of measures installed, the appropriate discount rate, and the expected levels of savings. This paper shows how one can incorporate input uncertainty and some intangibles into the cost-effectiveness analysis calculations. The Hood River Conservation Experiment provides the framework for analyzing these issues and serves as a pilot program for future conservation implementation.