Too Much Is Not Enough
Incentives in Executive Compensation
Published on 23. August 2012
Book
Hardback
232 pages
978-0-19-982958-3 (ISBN)
Description
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, there are 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 studied intensively 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 compensation generally, 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 of the 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. And while the literature being considered and evaluated is technical, the book is written in a non-mathematical way accessible to any college-educated reader.
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 compensation generally, 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 of the 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. And while the literature being considered and evaluated is technical, the book is written in a non-mathematical way accessible to any college-educated reader.
Reviews / Votes
Assessing the effectiveness of executive pay arrangements in providing desirable incentives presents important questions and has generated a tremendous amount of research. Making this research accessible to a wider audience, and drawing on it to discuss how pay arrangements can be improved, Too Much is Not Enough is a welcome contribution to the ongoing debates on the subject. * Lucian Bebchuk, William J. Friedman & Alicia Townsend Friedman Professor of Law, Economics, and Finance, and Director of the Program on Corporate Governance, Harvard Law School *More details
Series
Language
English
Place of publication
New York
United States
Target group
College/higher education
Professional and scholarly
Illustrations
36 b/w line
Dimensions
Height: 240 mm
Width: 161 mm
Thickness: 18 mm
Weight
559 gr
ISBN-13
978-0-19-982958-3 (9780199829583)
Copyright in bibliographic data and cover images is held by Nielsen Book Services Limited or by the publishers or by their respective licensors: all rights reserved.
Schweitzer Classification
Other editions
Additional editions
E-Book
08/2012
1st Edition
OUP eBook
€27.49
Available for download
E-Book
08/2012
1st Edition
OUP eBook
€20.99
Available for download
Person
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: Causes, Consequences, and Our Economic Future and Futures, Options, and Swaps.
Content
Preface ; 1. The Magnitude and Structure of Executive Compensation ; The Magnitude of CEO Compensation ; The Structure of Executive Compensation ; Salary ; Bonuses and Long-Term Incentive Plans ; Restricted Stock Awards ; Executive Stock Option (ESO) Awards ; Other Forms of Compensation ; 2. Corporate Governance, Agency Problems, and Executive Compensation ; Corporate Governance ; Agency Theory and Incentive Alignment ; Corporate Governance, Incentive Alignment, and the Managerial Power Hypothesis ; The Levers of Managerial Power ; Limits to Pay on the Managerial Power Hypothesis ; Assessing the Conceptual Conflict Between the Agency-Theoretic and Managerial Power Views of Executive Compensation ; What about Ethics, Duty, and Justice? ; Fiduciary Duty ; Executive Compensation and Distributive Justice ; 3. The Incentive Structure of Executive Compensation ; The Incentive Revolution and Executive Compensation ; Salary ; Bonuses ; Restricted Stock and Performance Shares ; Executive Stock Options ; Equity Compensation: Retaining the Employees You Have, and Attracting the Ones You Want ; Different Instruments as Tools of Incentive Compensation ; 4. Executive Stock Options and the Incentives They Create ; ESO Incentives, Firm Practices, and the Effect of Accounting Rules ; Option Pricing Models ; Option Valuation Effects of Individual Option Parameters ; The Option Pricing Model and Incentives ; Executive Stock Option Design, Management, and Incentives ; What Exercise Price? ; Repricing and Reloading Executive Stock Options ; The CEO's Utility and the Desire for ESOs ; 5. Executive Stock Option Programs: The Behavior of CEOs, Firms, and Investors ; CEO Wealth, Pay, and Performance ; Exercise of ESOs ; BOX 1: Detecting Abnormal Stock Market Performance ; Unwinding Incentives ; 6. Executive Incentives and Risk-Taking ; Equity Compensation and the CEO's Risk Appetite ; Executive Compensation and the Risk-Taking Behavior of CEOs ; Incentive Compensation, Risk-Taking, and the Financial Crisis of 2007-2009 ; 7. Incentive Compensation and the Management of the Firm ; Incentive Compensation and the Firm's Investment Program ; CEO Incentives and the Firm's Financing Decisions ; Compensation Incentives, Dividends, and Share Repurchases, ; Corporate Mergers, Acquisitions, and Liquidations ; Compensation Incentives and Corporate Risk Management ; Compensation Incentives and Corporate Disclosures ; 8. Perverse Incentive Effects: Executives Behaving Badly ; Earnings Management ; Option Games and Exploitation ; Option Games: A Warning About Incentives in Executive Compensation ; 9. Incentives in Executive Compensation: A Final Assessment ; Incentive Compensation and the Level of Executive Pay ; New Legislation and the Shaping of Incentives ; How Dysfunctional is Executive Pay? ; On Balance, Is Incentive Compensation Beneficial? ; To Improve Executive Compensation, Improve Corporate Governance ; Executive Pay, Continuing Inequality, and the Question of Justice ; Appendix: Binomial Valuation Method for Executive Stock Options ; Notes ; References ; Index