参考说明案例notes trials of h.pdfVIP

Trials of CRG

Executive Compensation: the essence is to assess the effectiveness of development of payment have on the

managers to appropriately perform their job. So the question can be:

Critically discuss the extent to which recent developments in executive compensation (e.g. the use of stock options and

long-term incentive plans) have the capacity to align the interests of executives and shareholders? Discuss in relation to

theory and evidence. In your answer, highlight the key factors that facilitate or hamper this. (Word count: 1295)

Theissueofexecutivecompensationhaslongbeenacontroversialone.Therehasbeenadebateastowhetherthe

recentdevelopmentsofexecutivecompensationwerecorrectionstoncyproblemorratheramanifestationof

agencyproblemandmanagerialpower.Toassesstheextenttowhichtheexecutivecompensationhavethecapacityto

aligntheinterestsofexecutivesandshareholders,thisessaywillfirstlyintroducetwomajordevelopmentsof

compensation,namelyexecutivestockoptions(ESOs)andlong-termincentiveplans(LTIPs),andexplainthe

theoreticalneedforeach.Itwillthenpresentcritiquesandevidenceofbothschemeswiththebehavioraleffects

highlighted.Finally,theessaywillconcludewithadiscussiononthepossibleremedies.

Theexecutivecompensationisameansviawhichshareholdersincentivizethemanagerstoactintheirbestinterests

ofvalueizationandrisktaking(forthepositive).Managers,intheirnature,assuggestedbyagencytheory,are

tentativetopursuetheirowninterests,thusrenderingagencycostsfortheprincipals.Thereasonfortherecent

developmentsofcompensationwaslargelydue