Executive Compensation

Topics: Management, Corporate governance, Board of directors Pages: 3 (822 words) Published: July 7, 2013
Corporate Finance

A Short Summary
Executive Compensation as an Agency Problem

This paper is briefly written on some important elements and points depicting the involvement of the managerial power over the executive compensation. This paper not only illustrates the problems created by the managerial power or the agency problem in between the managers and the shareholders but also reflects that’s the executive compensation is a problem by itself. Issues that have been focused for describing the problems created due to Executive compensation are: 1. Alternative Approaches to executive Compensation

2. The limitations of optical contracting
3. The managerial power approach
4. Power and camouflage at work
* Power-Ray relationships
* Compensation consultants
* Loans to executives
* Golden good byes
5. Suboptimal pay structures
* Pay without performance
* Option plans that fail to filter out “wind falls”
* At the money options
* Managers’ freedom to unwind equity incentives.
6. Costs to share holders

Alternative approaches to executive compensation:
There are many publicly traded companies where the manager and the shareholders are separated in many ways by individual seta of powers of their own. Many expertise have evaluate that the prominent subject of the executive compensation are the pay arrangements which are partially responsible for the agency problem. The unwanted involvements of the managers sometimes evolve an extra cost on the shareholders by imposing some new payment incentives which eventually effect the corporate environment or the performance of the employees. The limitations of the optical contracting:

Here it states that even if the managers face many agency problems they never maximize the shareholders wealth. Therefore large amount of incentives can motivate those managers to work for the shareholders to increase the wealth and increase the firm’s good fortune. The...
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