Executive Compensation And Shareholder Wealth Maximisation

964 Words May 1st, 2016 4 Pages
This literature reviewed ‘executive compensation’ and shareholder wealth maximisation. Most studies produced mixed outcomes in relations to the matter. In producing a critical analysis on prior literature, the motive has been to converge a succinct view from different authors’ standpoint in relation to an effectiveness of executive compensation as a function of value deliberation. In addition, considered other alternatives, such as board structure in resolving this agent-problem henceforth.
In summary, studies such as, Emre (2013) examined the effectives of executive pay and shareholders value. Findings reveals that, though seen as the solution to an agent-problem, pay-performance approach actually exasperates it. Main reason being , most CEOs who have been running the organisation long enough uses their power to make hostage the board to mastermind pay increase at the cost of an organisation. As pay negotiation occurs between CEOs and the board, the terms of agreements may not be submitted for shareholder endorsement. An opposing argument to this claim came from Gong (2011) who found a relationship between pay-performance in the long run. Nevertheless, Gong’s study bared testing limitations and accuracy of which further study is needed to gain a richer appreciation. Candy (2012) also tested for a relationship between ‘executive pay-performance’ and shareholder wealth, with a control variable being GFC, to see if their executive pay is effected in presence of such large…

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