Remuneration

About: Remuneration is a research topic. Over the lifetime, 6442 publications have been published within this topic receiving 81820 citations. The topic is also known as: retribution & compensation.

Clean Evidence on Peer Effects

Abstract: We study subjects who were asked to fill letters into envelopes with a remuneration independent of output. In the “pair” treatment, two subjects worked at the same time in the same room, and peer effects were possible. In the “single” treatment, subjects worked alone, and peer effects were ruled out. We find evidence of peer effects in the pair treatment because the standard deviations of output are smaller within pairs than between pairs. Moreover, average output is higher in the pair treatment: thus, peer effects raise productivity. Finally, low‐productivity workers are the most sensitive to the behavior of peers.

Remuneration: Where We've Been, How We Got to Here, What Are the Problems, and How to Fix Them

Abstract: Currently, we are in the midst of a reexamination of chief executive officer (CEO) remuneration that has more than the usual amount of energy and substance. While much of the fury over CEO pay has been aimed at executives associated with accounting scandals and collapses in the prices of their company's shares, the controversies over GE CEO Jack Welch and NYSE CEO Richard Grasso signal a watershed. In their cases the competence and performance of both men were unquestioned: the issue seems to be the perception that they received "too much" and that there was inadequate disclosure. We provide, history, analysis and over three dozen recommendations for reforming the system surrounding executive compensation. Section I introduces a conceptual framework for analyzing remuneration and incentives in organizations. We then analyze the agency problems between managers and shareholders and between board members and shareholders, and discuss how well designed pay packages can mitigate the former while well designed corporate governance policies and processes can mitigate the latter. We say "mitigate" because no solutions will eliminate these agency problems completely. Since bad governance can easily lead to value destroying pay practices our discussion includes analyses of corporate governance as well as pay design. Because optimal remuneration policies cannot be designed and managed without consideration of the powerful relations and interactions between the financial markets and the firm, its top-level executives and the board, we devote significant space to these factors. Section II offers a brief history of executive remuneration from 1970 to the present. Section III examines and explains the forces behind the US-led escalation in share options. We argue that boards and managers falsely perceive stock options to be inexpensive because of accounting and cash-flow considerations and, as a result, too many options have been awarded to too many people. Section IV defines and discusses the agency costs of overvalued equity as the source of recent corporate scandals. Agency problems associated with overvalued equity are aggravated when managers have large holdings of stock or options. Because neither the market for corporate control or the usual incentive compensation systems can solve the agency problems of overvalued equity, they must be resolved by corporate governance systems. And few governance systems were strong enough to solve the problems. As the overvalued equity problem illustrates, while remuneration can be a solution to agency problems, it can also be a source of agency problems. Section V discusses several widespread problems with pay processes and practices, and suggests changes in both corporate governance and pay design to mitigate such problems: including problems with the appointment and pay-setting process, problems with equity-based pay plans, and problems with the design of traditional bonus plans. We show how traditional plans encourage managers to ignore the cost of capital, manage earnings in ways that destroy value, and take actions to deceive investors and capital markets. Section VI defines and analyzes a new concept: what we call the Strategic Value Accountability issue. This is the accountability for making the link between strategy formulation and choice and the value consequences of those choices - basically the link between internal managers and external capital markets. The critical importance of this accountability, its assignment, and its implications for performance measurement and remuneration have long been unrecognized and therefore ignored in most organizations. Section VII analyzes the complex relationships between managers, analysts, and the capital market, the incentives firms have to manage earnings to meet or beat analyst forecasts, and shows how managers playing the earnings-management game systematically erode the integrity of their organization and destroy organizational value. We highlight the puzzling equilibrium in this market that seems to suggest collusion between analysts and managers at the expense of investors - an area that is ripe for further research.

Salaries and Piece Rates

Abstract: Compensation can take many forms. Remuneration can come as pecuniary payments, as fringes such as health and pension benefits, or as a nonpecuniary reward such as plush office furniture that costs the firm less than it benefits the worker. A significant literature has examined the trade-offs between pecuniary and nonpecuniary compensation, the modern work having been pioneered by Rosen (1974). More recently, another body of literature has examined the selection of method of total compensation, ignoring the distinction between pecuniary and nonpecuniary payment. This work has focused on risk and incentive factors. It has resulted in comparisons of compensation based on absolute output levels to that based on relative performance.' It has also led to explorations of the relation of compensation to experience over the work life.2 Little attention has been paid to what may be among the most important and obvious distinction in methods of compensation, namely, the choice between a fixed salary for some period of time, that is, paying on the basis of input and Some workers receive compensation that is specified in advance and not directly contingent on performance. Instead, it depends on an input measure, such as hours worked. For others, compensation is directly related to output. This essay is an attempt to predict a firm's choice of compensation method. Piece rates are defined more rigorously. Among the more important factors discussed are worker heterogeneity, incentives, sorting considerations, monitoring costs, and asymmetric information. One result is that salary workers tend to be of lower quality and more homogeneous than are their piece-rate counterparts. Numerous additional results are provided. * Helpful comments by Victoria Lazear and Yoram Weiss are gratefully acknowledged. Support was provided by the Department of Labor and the National Science Foundation. 1. See Lazear and Rosen (1981), Stiglitz (1981), Holmstrom (1982), Green and Stokey (1983). 2. See Lazear (1979, 1981) and Harris and Holmstrom (in press).

Board Control, Remuneration Committees, and Top Management Compensation

Abstract: Assesses the relationship between boards of directors, compensation committees and top management pay, focusing on the role and impact of corporate governance mechanisms and the structure of boards of directors to explain variations in top management pay in the UK. Uses data from the 'Financial Times' top 100 companies to examine the relationship between: top management compensation, non-executive directors and corporate performance; top management compensation, existence of compensation committees and proportion of non-executives on these committees; and the relationship between top management compensation and Chief Executive Officer (CEO) duality. Finds that, in general, boardroom control and vigilance has a limited effect in shaping top management compensation, neither the proportion of outside directors, nor CEO duality being related to management compensation; and companies adopting compensation committees have higher levels of top management pay. Demonstrates that the direct effect of boardroom control variables on the level of management compensation is minimal.