How Ceo Power Affects Compensation Contract Design

781 WordsApr 22, 20174 Pages
In this study, Morse (2011) found that CEO could use the managerial power to disguise components of their compensation to avoid the influence of regulatory reforms. The findings showed that companies which with powerful CEO adopt the PVSOs early and likely to set the easier vesting targets. In particularly, this results demonstrated CEO use their power to adopt PVSOs early only if the they have the power which can influence the vesting targets. Hence, the results supported the prediction of managerial power theory (MPT) which is outrage, also could influence the compensation contract design. Hence, this paper also provided evidences to show that powerful CEO could use a series of disguise activities to attenuate the purpose of regulators…show more content…
To begin with, the effectiveness of the approaches that used to decline endogeneity problems is still controversial. Secondly, It assumed that it would increase the value for the firm when we increased the wealth delta which used to measure the efficiency of compensation contacts. However, it could reduce the firm value by overly high delta. The next limitation is that sample and focus were all large listed companies on the London Stock Exchange, so the result for PVSOs adoption would be different from small or medium-sized firms or other firms listed on other exchanges. Lastly, all data and information was collected from two year after the publication of the Greenbury Report (1995) because of the resources availability. Despite these potential limitations above, this report demonstrated the role of CEO power on designing compensation contract, and it also provided some implications for regulators on company governance. To suggest the possible research extension, it could be held to control and limit CEO power. It also can be how to avoid that CEO power influence the compensation contract design and how to solve this problem that CEO has significant power. For example, it can research how to build an efficient compensation committee and how to improve the audit and supervise system about CEO power. References for part one: Morse, A., V. Nanda, and A. Seru. 2011. Are incentive contracts rigged by powerful CEOs? Journal of Finance 66 (5):
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