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Managerial Compensation : Agency Solution or Problem

Author

Listed:
  • Philipp Geiler

    (EM - EMLyon Business School)

  • Luc Renneboog

Abstract

This study investigates whether remuneration contracting provides sufficient managerial incentives to create shareholder value. We contrast the arguments that remuneration contracts effectively reduce agency costs to the idea that the remuneration contracting process enables managers to skim corporate profits. From a structured survey of the literature, serious doubts emerge on the effectiveness of executive pay. While executive remuneration seems to be efficient in many cases, research also provides ample evidence of managerial self-dealing, abuse of managerial power and various forms of hidden compensation. The question is whether or not these cases reflect a systematic problem in corporate governance. This study offers insights to policy makers and promotes the further development of governance standards with respect to better disclosure of executive pay, the introduction of longer vesting periods for stock options, the reduction in managerial rent extraction and the better alignment of executive remuneration with shareholder value creation.

Suggested Citation

  • Philipp Geiler & Luc Renneboog, 2011. "Managerial Compensation : Agency Solution or Problem," Post-Print hal-02313090, HAL.
    • Handle: RePEc:hal:journl:hal-02313090
    as

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    Citations

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    Cited by:

    1. Geiler, Philipp & Renneboog, Luc, 2015. "Are female top managers really paid less?," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 345-369.
    2. Xin Qu & Majella Percy & Fang Hu & Jenny Stewart, 2022. "Can CEO equity‐based compensation limit investment‐related agency problems?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2579-2614, June.
    3. Konstandatos, Otto, 2020. "Fair-value analytical valuation of reset executive stock options consistent with IFRS9 requirements," Annals of Actuarial Science, Cambridge University Press, vol. 14(1), pages 188-218, March.
    4. Chen, Fang & Jia, Jianjun & Lin, Yuen & Xiang, George, 2022. "Should managers be incentivized with stock or options? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    5. Geiler, P.H.M. & Renneboog, L.D.R., 2014. "Executive Remuneration and the Payout Decision," Discussion Paper 2014-032, Tilburg University, Center for Economic Research.
    6. Ann-Christine Schulz & Miriam Flickinger, 2020. "Does CEO (over)compensation influence corporate reputation?," Review of Managerial Science, Springer, vol. 14(4), pages 903-927, August.
    7. Viput Ongsakul & Anutchanat Jaroenjitrkam & Sirimon Treepongkaruna & Pornsit Jiraporn, 2022. "Does board gender diversity reduce ‘CEO luck’?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 243-260, March.
    8. Geiler, P.H.M., 2012. "Essays on executive remuneration contracting : Managerial power, corporate payout, and gender discrimination," Other publications TiSEM 3c536b0d-bce3-4d1a-9f6f-3, Tilburg University, School of Economics and Management.
    9. Goergen, Marc & Renneboog, Luc, 2011. "Managerial compensation," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1068-1077, September.
    10. Omar Farooque & Wonlop Buachoom & Nam Hoang, 2019. "Interactive effects of executive compensation, firm performance and corporate governance: Evidence from an Asian market," Asia Pacific Journal of Management, Springer, vol. 36(4), pages 1111-1164, December.
    11. Matthew Grosse & Nelson Ma & Tom Scott, 2020. "Evidence on compensation consultant fees and CEO pay," Australian Journal of Management, Australian School of Business, vol. 45(1), pages 15-44, February.

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