Comments on Shan and Walter : towards a set of design principles for executive compensation contracts

Beaumont, Stacey and Ratiu, Raluca and Reeb, David and Boyle, Glenn and Brown, Philip and Szimayer, Alexander and da Silva Rosa, Raymond and Hillier, David and McColgan, Patrick and Tsekeris, Athanasios and Howieson, Bryan and Matolcsy, Zoltan and Spiropoulos, Helen and Roberts, John and Smith, Tom and Zhou, Qing and Swan, Peter and Taylor, Stephen and Wright, Sue and Yermack, David (2016) Comments on Shan and Walter : towards a set of design principles for executive compensation contracts. Abacus, 52 (4). pp. 685-771. ISSN 0001-3072

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    Abstract

    This paper is developed around the set of design principles for executive compensation contracts as outlined in the study of Shan and Walter (2014). We propose guidance for determining an appropriate CEO starting compensation level based on past performance and the market for managerial talent. We also outline factors to be considered in determining annual changes to CEO compensation. This paper argues that stock options and restricted stock grants should become exercisable only upon meeting both time and performance criteria against an appropriate benchmark peer group. We agree with Shan and Walter’s (2014) recommendations regarding termination payments and make suggestions on how to apply these recommendations in practice.