Alternative Approaches to Executive Compensation Essay

Alternative Approaches to Executive earnings - Essay Example Limitations of Optimal Contracting Agency riddle experienced by managers chief executive officer can influence the nomination process for the board directors The directors may never challenge the chief executive officers pay, as they may want to please the CEO. Market forces are not strong enough to assure optimal contracting outcomes Failure of maximizing the shareholder value Directors kindle in the firm is nominal and therefore may not be serious with the company management. some(prenominal) agreements of the directors may be affected by market forces especially those affecting capital. Managerial power appeal The Managerial power approach gives managers an opportunity to camouflage especially when extracting rent, The approach may lead to the use of goods and services of structures unfavorable to the firm performance and managerial incentives. The compensation arrangement design depends on the perception of the outside(a)rs The managerial power approach may influence the relationship between power and pay without considering performance The CEOs compensation may be influenced by transparency and salience disclosure. Power and Camouflage at Work Practices explained by power camouflage include Power Pay Relationship Pay is higher(prenominal) in if managers have higher power The board is ineffective There is a small outside shareholder Fewer institutional shareholders Managers are protected by antitakeover arrangements Managers with antitakeover policy compensate themselves more Compensation consultants Employed to provide advice on executive compensation May increase their incentive to please the CEO Used to justify executive pay instead of optimizing it Provides compensation data, which favors the CEO Stealth Compensation This is where a firm may use camouflaging practices to enable them to pay the executives large sums of money. Payments include deferred compensation Loan blessing and c onsultation contracts Use of executive loans with favorable interest rates