Corporate Governance Reform and CEO Compensation: Intended and Unintended Consequences |
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Authors: | Email author" target="_blank">Ella?Mae?MatsumuraEmail author Jae?Yong?Shin |
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Institution: | (1) Department of Accounting and Information Systems, School of Business, University of Wisconsin--Madison, 975 University Avenue, Madison, WI 53706-1323, USA |
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Abstract: | Recent scandals allegedly linked to CEO compensation have brought executive compensation and perquisites to the forefront
of debate about constraining executive compensation and reforming the associated corporate governance structure. We briefly
describe the structure of executive compensation, and the agency theory framework that has commonly been used to conceptualize
executives acting on behalf of shareholders. We detail some criticisms of executive compensation and associated ethical issues,
and then discuss what previous research suggests are likely intended and unintended consequences of some widely proposed executive
compensation reforms. We explicitly discuss the following recommendations for reform: require greater independence of compensation
committees, require executives to hold equity in the corporation, require greater disclosure of executive compensation, increase
institutional investor involvement in corporate governance (including executive compensation), and require firms to expense
stock options on their income statements. We provide a brief summary discussion of ethical issues related to executive compensation,
and describe possible future research. |
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Keywords: | corporate governance executive compensation independent compensation committee institutional investor stock-based compensation |
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