Overview of Pay without Performance. Presentation by Jesse Fried Columbia University October 15, 2004. Presentation Outline. Why we wrote the book The stakes Part I: Official view and its shortcomings Part II: Power and pay Part III: Decoupling pay from performance
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Presentation by Jesse Fried
October 15, 2004
To question systematically several widely-held views about executive compensation:
but are necessary to provide executives w/ powerful incentives.
To deliver a broader message about corporate governance in general:
Our study of executive pay:
Corporate boards operate at arm’s-length from executives – it’s a market like any other.
Rents not unlimited. Limits on how far directors will go, how far managers want them to go
“It’s not how much you pay, but how” (Jensen & Murphy)
There is only a weak link between managers’ own performance and
But what about equity-based compensation?
Improving executive compensation
Recent reforms, including new stock exchange listing requirements, emphasize strengthening director independence from executives. These reforms will reduce but not eliminate directors’ pro-executive tilt:
Current insulation of boards from shareholders not inevitable product of dispersed ownership; rather, largely results from legal arrangements in place. We should:
By making boards accountable to shareholders and attentive to their interests, such reforms would:
Our critique of executive compensation differs from two other types:
This is area where perceptions matter a great deal. The very recognition of problems may help alleviate them: