Tuesday 3 April 2012

CEO performance evaluation and compensation in Corporate Governance

Based on A.de Kluyer (2009), I note the following discussion agenda on the topic of CEO performance evaluation and compensation in Corporate Governance:
  1. On CEO performance evaluation and its main challenges
    • Uncertainty on roles and responsibilities
    • Lack of time
    • Lack of agreement on assessment criteria
    • Lack of information on nonquantitative performance
  2. On dimensions of performance evaluation
    • Bottom line impact
    • Operational impact
    • Leadership effectiveness
  3. Executive compensation
    • How much?
    • Stock options?
    • Golden parachutes?
    • Some observations on CEO incentives (re: Jensen and Murphy (2005)):
      • Annual changes in executive compensation do not reflect changes in corporate performance
      • Compensation for CEOs is no more variable than compensation for hourly and salaried employees
      • With respect to pay for performance, CEO compensation is getting worse rather than better
    • Some advices on CEO incentives (re: Jensen and Murphy (2005)):
      • CEOs should own substantial amounts of company stock
      • Cash compensation  should be structured to provide high rewards for outstanding peformance and vice versa
      • Make real the threat of dismissal
  4. On compensation committee
  5. On executive compensation best practices




References
  1. A.de. Kluyer, C. (2009) A Primer on Corporate Governance, Business Expert Press. [Chapter 8: CEO performance evaluation and executive compensation]
  2. Jensen, M.C. and Murphy, K.J. (2005) "CEO incentives - it's not how much you pay, but how", in Chew, Jr., D.H. and Gillan, S.L. (editors) Corporate Governance at the crossroads: a book of readings, McGraw-Hill.
  3. On executive pay: http://en.wikipedia.org/wiki/Executive_pay
  4. A guide on CEO compensation: http://www.investopedia.com/articles/stocks/04/111704.asp#axzz1qyYU0Zkz
  5. On effective CEO performance evaluation: http://www.axi.ca/tca/may2004/featurearticle.shtml

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