جبران بازنشستگی مديرعامل
Abstract
1- The agency problem
2- What is CEO inside debt?
3- The role of inside debt
4- What impact does inside debt actually have on the CEO?
5- Excessive compensation or a moderator of firm risk?
6- Summary
References
Abstract
CEOs face constant scrutiny over their compensation packages. This scrutiny has only intensified amid discussions of CEO-to-employee pay ratios and income inequality nationwide. CEO retirement packages are criticized as camouflage compensation used to award excessive compensation to CEOs and were, prior to 2006, less transparent than they are now. Thanks to the transparent disclosures now required by the SEC, we have a better understanding of the types and amounts of compensation owed to CEOs after they depart or retire, termed inside debt. I investigate whether all CEO inside debt components share similar incentive effects and offers some thoughts on how companies might structure these packages to be most effective. I discuss the structure and incentive effects of the two primary components of inside debt: deferred compensation and supplemental executive retirement plans (SERPs). I explain why inside debt, particularly CEO SERPs, may actually help companies manage firm risk. Finally, I outline the best ways to structure inside debt so that it functions as a resource to manage firm risk and foster a long-term perspective rather than mirroring the incentive effect of equity, increasing risk, and encouraging a myopic focus.
The agency problem
The structureofCEOcompensationhasbeendebated since the formation of the first corporations, which, since they separate ownership from management, introduce an inherent agency problem. Owners no longer manage the firm, and managers ofthe firm are hired by the owners, through the board, but do not ownthefirm.Owners entrustmanagement of thefirm to agents whose motivations differ from their own. This agency problem only grows more severe with diffuse ownership. Agency theorists have written about this conflict since at least the first half of the20th century (e.g.,Berle & Gardiner, 1932; Jensen & Meckling, 1976). The solution most commonly discussed is to grant ownership–—such as stock options and other equity grants–—to managers with the purpose of aligning theirincentives with the incentives ofthe owners. If incentives are aligned, then there is less concern that managers will act in their own best interest ratherthan in the interest of owners. Most of whatis written about CEO compensation, whether in media or in academe, is focused on equity ownership to alleviate the agency conflict with stockholders. However, equity incentives, particularly stock options, also provide incentives for managers to increase risk. This incentive, combined with a corporate culture obsessed with quarter-to-quarter results, has caused some concern about excessive risk taking, especially in light ofrecent bank failures during and following the U.S. recession. The other side of the agency problem that historically has received less attention but now is starting to receive more is aligning the incentives of managers with not only stockholders but also debt holders. The majority of capital raised in our economy is through debt offerings, not equity. This is where retirement compensation can be used as a tool to alleviate agency conflict. Compensation that CEOs are to receive at retirement is termed inside debt: payments that are owed to the CEO that are similar to debt payments. Historically, retirement compensation has been granted by boards based on industry or societal standards, with little thought given to the incentive effects. Critics of retirement packages have called out retirement compensation as excessive because they believe that it is not tied to performance. Recent research showed that not only can retirement compensation help alleviate agency conflicts with debtholders, but also serve as a valuable tool to manage CEO risk taking.