Podcast
Questions and Answers
Shareholders are the ones who bear the risk in the agency relationship
Shareholders are the ones who bear the risk in the agency relationship
True (A)
Executive compensation is not based on incentive-based models
Executive compensation is not based on incentive-based models
False (B)
The separation of ownership and managerial control is the basis of the modern corporation
The separation of ownership and managerial control is the basis of the modern corporation
True (A)
The main purpose of a compensation plan is to provide the right incentives
The main purpose of a compensation plan is to provide the right incentives
ESG metrics are more commonly included in compensation contracts in countries where ESG reporting is already mandatory
ESG metrics are more commonly included in compensation contracts in countries where ESG reporting is already mandatory
ESG Pay is associated with firms that have publicly issued environmental commitments
ESG Pay is associated with firms that have publicly issued environmental commitments
ESG Pay is associated with firms that have smaller boards with a lower percentage of female members
ESG Pay is associated with firms that have smaller boards with a lower percentage of female members
Firms linking ESG performance to executive compensation receive on average more favorable ESG scores from outside rating agencies
Firms linking ESG performance to executive compensation receive on average more favorable ESG scores from outside rating agencies
The inclusion of a measure specifically related to emissions in the contract is associated with an increase in carbon emissions
The inclusion of a measure specifically related to emissions in the contract is associated with an increase in carbon emissions
There is a positive association between ESG Pay and financial outcomes such as return on assets
There is a positive association between ESG Pay and financial outcomes such as return on assets
Stock and option incentives are believed to solve agency problems perfectly
Stock and option incentives are believed to solve agency problems perfectly
The PPE measure of incentives is related to firm performance
The PPE measure of incentives is related to firm performance
Fractional ownership as a measure of incentives is problematic because firms differ in size and CEOs differ in their wealth
Fractional ownership as a measure of incentives is problematic because firms differ in size and CEOs differ in their wealth
Incentives should be positively related to firm performance
Incentives should be positively related to firm performance
Optimal incentives do not differ across firms/industries
Optimal incentives do not differ across firms/industries
Nowadays, IFRS 2 and FAS 123(R) take into account the value of the option at grant date and amortize that value during the life of the option or vesting period
Nowadays, IFRS 2 and FAS 123(R) take into account the value of the option at grant date and amortize that value during the life of the option or vesting period
Severance multiples for executives have increased over time, as perks represent a larger portion of total compensation.
Severance multiples for executives have increased over time, as perks represent a larger portion of total compensation.
Share ownership guidelines require executives to hold a certain number of shares, often defined as a multiple of base salary.
Share ownership guidelines require executives to hold a certain number of shares, often defined as a multiple of base salary.
Clawback policies give companies the right to recover incentive compensation if performance was based on erroneous information.
Clawback policies give companies the right to recover incentive compensation if performance was based on erroneous information.
The CEO pay ratio requires disclosure of the median total annual compensation of all employees and the ratio of employee median to CEO total compensation.
The CEO pay ratio requires disclosure of the median total annual compensation of all employees and the ratio of employee median to CEO total compensation.
Determining executive compensation involves benchmarking and the use of compensation consultants by the compensation committee.
Determining executive compensation involves benchmarking and the use of compensation consultants by the compensation committee.
In 2018, Nokia complied with the Finnish Corporate Governance Code, except for restricted share plans lacking performance criteria.
In 2018, Nokia complied with the Finnish Corporate Governance Code, except for restricted share plans lacking performance criteria.
Various countries have the same regulations and legislation governing executive compensation, influencing compensation strategies.
Various countries have the same regulations and legislation governing executive compensation, influencing compensation strategies.
Incentive-based compensation raises concerns about pay-for-performance sensitivity and the potential for excessive risk-taking.
Incentive-based compensation raises concerns about pay-for-performance sensitivity and the potential for excessive risk-taking.
Theories explaining CEO compensation include rent extraction, competitive pay, managerial power, management talent, technology change, and general managerial skills.
Theories explaining CEO compensation include rent extraction, competitive pay, managerial power, management talent, technology change, and general managerial skills.
Potential incentive problems with accounting-based and stock option incentives include manipulation of accounting results and excessive risk-taking.
Potential incentive problems with accounting-based and stock option incentives include manipulation of accounting results and excessive risk-taking.
An international perspective on CEO compensation shows variations in the percentage of fixed and variable pay across different countries.
An international perspective on CEO compensation shows variations in the percentage of fixed and variable pay across different countries.
Research has shown that executive compensation is influenced by factors such as fractional ownership, managerial talent, and technology change.
Research has shown that executive compensation is influenced by factors such as fractional ownership, managerial talent, and technology change.
Employers aim to attract, retain, and motivate employees but do not need to align their interests with shareholders.
Employers aim to attract, retain, and motivate employees but do not need to align their interests with shareholders.
Employees are only interested in compensation and do not care about employment security or post-employment termination.
Employees are only interested in compensation and do not care about employment security or post-employment termination.
Compensation determination involves estimating company value creation, CEO's attributable efforts, and fair compensation percentage.
Compensation determination involves estimating company value creation, CEO's attributable efforts, and fair compensation percentage.
Compensation levels are practically determined through guesswork and without input from remuneration committees and compensation consultants.
Compensation levels are practically determined through guesswork and without input from remuneration committees and compensation consultants.
Short-term incentives include base salary and bonus compensation based on performance goals.
Short-term incentives include base salary and bonus compensation based on performance goals.
Bonus compensation aims to motivate performance but does not align executives with the company's short-term objectives.
Bonus compensation aims to motivate performance but does not align executives with the company's short-term objectives.
Long-term incentives are only based on achievement of goals over a period exceeding one year.
Long-term incentives are only based on achievement of goals over a period exceeding one year.
Stock grants, including restricted stock and performance shares, aim to align executive and shareholder interests, attract, retain, and motivate employees, and create wealth.
Stock grants, including restricted stock and performance shares, aim to align executive and shareholder interests, attract, retain, and motivate employees, and create wealth.
Stock options always lead to increased risk-taking and dilution, and are always tied to the company's financial performance.
Stock options always lead to increased risk-taking and dilution, and are always tied to the company's financial performance.
Other compensations include only perquisites and retirement compensation, but not severance pay.
Other compensations include only perquisites and retirement compensation, but not severance pay.
Executive compensation is primarily based on incentive-based models
Executive compensation is primarily based on incentive-based models
The separation of ownership and managerial control is not the basis of the modern corporation
The separation of ownership and managerial control is not the basis of the modern corporation
The main purpose of a compensation plan is to provide the right incentives
The main purpose of a compensation plan is to provide the right incentives
Fractional ownership as a measure of incentives is not problematic because firms differ in size and CEOs differ in their wealth
Fractional ownership as a measure of incentives is not problematic because firms differ in size and CEOs differ in their wealth
Managers' temptations include shirking, hiring friends, consuming excessive perks, and taking excessive or no risks.
Managers' temptations include shirking, hiring friends, consuming excessive perks, and taking excessive or no risks.
Compensation determination involves estimating company value creation, CEO's attributable efforts, and fair compensation percentage.
Compensation determination involves estimating company value creation, CEO's attributable efforts, and fair compensation percentage.
Stock grants, including restricted stock and performance shares, aim to align executive and shareholder interests, attract, retain, and motivate employees, and create wealth.
Stock grants, including restricted stock and performance shares, aim to align executive and shareholder interests, attract, retain, and motivate employees, and create wealth.
Bonus compensation aims to motivate performance but does not align executives with the company's short-term objectives.
Bonus compensation aims to motivate performance but does not align executives with the company's short-term objectives.
Long-term incentives are only based on achievement of goals over a period exceeding one year.
Long-term incentives are only based on achievement of goals over a period exceeding one year.
ESG Pay is associated with firms that have publicly issued environmental commitments.
ESG Pay is associated with firms that have publicly issued environmental commitments.
Various countries have the same regulations and legislation governing executive compensation, influencing compensation strategies.
Various countries have the same regulations and legislation governing executive compensation, influencing compensation strategies.
The separation of ownership and managerial control is the basis of the modern corporation.
The separation of ownership and managerial control is the basis of the modern corporation.
Share ownership guidelines require executives to hold a certain number of shares, often defined as a multiple of base salary.
Share ownership guidelines require executives to hold a certain number of shares, often defined as a multiple of base salary.
Incentives should be positively related to firm performance.
Incentives should be positively related to firm performance.
The CEO pay ratio requires disclosure of the median total annual compensation of all employees and the ratio of employee median to CEO total compensation.
The CEO pay ratio requires disclosure of the median total annual compensation of all employees and the ratio of employee median to CEO total compensation.
Firms linking ESG performance to executive compensation receive on average more favorable ESG scores from outside rating agencies.
Firms linking ESG performance to executive compensation receive on average more favorable ESG scores from outside rating agencies.
Severance multiples for executives have declined over time, as perks represent a diminishing portion of total compensation.
Severance multiples for executives have declined over time, as perks represent a diminishing portion of total compensation.
Share ownership guidelines require executives to hold a certain number of shares, often defined as a multiple of base salary.
Share ownership guidelines require executives to hold a certain number of shares, often defined as a multiple of base salary.
Clawback policies give companies the right to recover incentive compensation if performance was based on erroneous information.
Clawback policies give companies the right to recover incentive compensation if performance was based on erroneous information.
The CEO pay ratio requires disclosure of the median total annual compensation of all employees and the ratio of employee median to CEO total compensation.
The CEO pay ratio requires disclosure of the median total annual compensation of all employees and the ratio of employee median to CEO total compensation.
Determining executive compensation involves benchmarking and the use of compensation consultants by the compensation committee.
Determining executive compensation involves benchmarking and the use of compensation consultants by the compensation committee.
In 2018, Nokia complied with the Finnish Corporate Governance Code, except for restricted share plans lacking performance criteria.
In 2018, Nokia complied with the Finnish Corporate Governance Code, except for restricted share plans lacking performance criteria.
Incentive-based compensation raises concerns about pay-for-performance sensitivity and the potential for excessive risk-taking.
Incentive-based compensation raises concerns about pay-for-performance sensitivity and the potential for excessive risk-taking.
Theories explaining CEO compensation include rent extraction, competitive pay, managerial power, management talent, technology change, and general managerial skills.
Theories explaining CEO compensation include rent extraction, competitive pay, managerial power, management talent, technology change, and general managerial skills.
Potential incentive problems with accounting-based and stock option incentives include manipulation of accounting results and excessive risk-taking.
Potential incentive problems with accounting-based and stock option incentives include manipulation of accounting results and excessive risk-taking.
An international perspective on CEO compensation shows variations in the percentage of fixed and variable pay across different countries.
An international perspective on CEO compensation shows variations in the percentage of fixed and variable pay across different countries.
Research has shown that executive compensation is influenced by factors such as fractional ownership, managerial talent, and technology change.
Research has shown that executive compensation is influenced by factors such as fractional ownership, managerial talent, and technology change.
Various countries have different regulations and legislation governing executive compensation, influencing compensation strategies.
Various countries have different regulations and legislation governing executive compensation, influencing compensation strategies.
ESG Pay is associated with firms that have publicly issued environmental commitments
ESG Pay is associated with firms that have publicly issued environmental commitments
Fractional ownership as a measure of incentives is problematic because firms differ in size and CEOs differ in their wealth
Fractional ownership as a measure of incentives is problematic because firms differ in size and CEOs differ in their wealth
Incentives should be positively related to firm performance
Incentives should be positively related to firm performance
Stock option’s favorable tax treatment for executives is no longer taken into account by IFRS 2 and FAS 123(R)
Stock option’s favorable tax treatment for executives is no longer taken into account by IFRS 2 and FAS 123(R)
The inclusion of a measure specifically related to emissions in the contract is associated with a decrease in carbon emissions
The inclusion of a measure specifically related to emissions in the contract is associated with a decrease in carbon emissions
Short-term incentives include base salary and bonus compensation based on performance goals
Short-term incentives include base salary and bonus compensation based on performance goals
Long-term incentives are only based on achievement of goals over a period exceeding one year
Long-term incentives are only based on achievement of goals over a period exceeding one year
Stock grants, including restricted stock and performance shares, aim to align executive and shareholder interests, attract, retain, and motivate employees, and create wealth
Stock grants, including restricted stock and performance shares, aim to align executive and shareholder interests, attract, retain, and motivate employees, and create wealth
Determining executive compensation involves benchmarking and the use of compensation consultants by the compensation committee
Determining executive compensation involves benchmarking and the use of compensation consultants by the compensation committee
Share ownership guidelines require executives to hold a certain number of shares, often defined as a multiple of base salary
Share ownership guidelines require executives to hold a certain number of shares, often defined as a multiple of base salary
ESG metrics are more commonly included in compensation contracts in countries where ESG reporting is already mandatory
ESG metrics are more commonly included in compensation contracts in countries where ESG reporting is already mandatory
The separation of ownership and managerial control is the basis of the modern corporation
The separation of ownership and managerial control is the basis of the modern corporation
Executive pay is always perfectly aligned with firm performance due to incentive-based compensation
Executive pay is always perfectly aligned with firm performance due to incentive-based compensation
The separation of ownership and managerial control is the basis of the modern corporation
The separation of ownership and managerial control is the basis of the modern corporation
Incentive-based compensation completely eliminates potential managerial temptations
Incentive-based compensation completely eliminates potential managerial temptations
The modern public corporation form leads to efficient specialization of tasks
The modern public corporation form leads to efficient specialization of tasks
Clawback policies give companies the right to recover incentive compensation if performance was based on erroneous information.
Clawback policies give companies the right to recover incentive compensation if performance was based on erroneous information.
Determining executive compensation involves benchmarking and the use of compensation consultants by the compensation committee.
Determining executive compensation involves benchmarking and the use of compensation consultants by the compensation committee.
The CEO pay ratio requires disclosure of the median total annual compensation of all employees and the ratio of employee median to CEO total compensation.
The CEO pay ratio requires disclosure of the median total annual compensation of all employees and the ratio of employee median to CEO total compensation.
Incentive-based compensation raises concerns about pay-for-performance sensitivity and the potential for excessive risk-taking.
Incentive-based compensation raises concerns about pay-for-performance sensitivity and the potential for excessive risk-taking.
Theories explaining CEO compensation include rent extraction, competitive pay, managerial power, management talent, technology change, and general managerial skills.
Theories explaining CEO compensation include rent extraction, competitive pay, managerial power, management talent, technology change, and general managerial skills.
Stock options always lead to increased risk-taking and dilution, and are always tied to the company's financial performance.
Stock options always lead to increased risk-taking and dilution, and are always tied to the company's financial performance.
Various countries have different regulations and legislation governing executive compensation, influencing compensation strategies.
Various countries have different regulations and legislation governing executive compensation, influencing compensation strategies.
Research has shown that executive compensation is influenced by factors such as fractional ownership, managerial talent, and technology change.
Research has shown that executive compensation is influenced by factors such as fractional ownership, managerial talent, and technology change.
Bonus compensation aims to motivate performance but does not align executives with the company's short-term objectives.
Bonus compensation aims to motivate performance but does not align executives with the company's short-term objectives.
Short-term incentives include base salary and bonus compensation based on performance goals.
Short-term incentives include base salary and bonus compensation based on performance goals.
Long-term incentives are only based on achievement of goals over a period exceeding one year.
Long-term incentives are only based on achievement of goals over a period exceeding one year.
An international perspective on CEO compensation shows variations in the percentage of fixed and variable pay across different countries.
An international perspective on CEO compensation shows variations in the percentage of fixed and variable pay across different countries.
Stock and option incentives are believed to solve agency-problem
Stock and option incentives are believed to solve agency-problem
Incentives should be positively related to firm performance
Incentives should be positively related to firm performance
Incentive-based compensation raises concerns about pay-for-performance sensitivity and the potential for excessive risk-taking
Incentive-based compensation raises concerns about pay-for-performance sensitivity and the potential for excessive risk-taking
ESG Pay is associated with firms that have publicly issued environmental commitments
ESG Pay is associated with firms that have publicly issued environmental commitments
Fractional ownership as a measure of incentives is problematic because firms differ in size and CEOs differ in their wealth
Fractional ownership as a measure of incentives is problematic because firms differ in size and CEOs differ in their wealth
Short-term incentives include base salary and bonus compensation based on performance goals
Short-term incentives include base salary and bonus compensation based on performance goals
Nowadays, IFRS 2 and FAS 123(R) take into account the value of the option at grant date and amortize that value during the life of the option or vesting period
Nowadays, IFRS 2 and FAS 123(R) take into account the value of the option at grant date and amortize that value during the life of the option or vesting period
The separation of ownership and managerial control is the basis of the modern corporation
The separation of ownership and managerial control is the basis of the modern corporation
ESG metrics are more commonly included in compensation contracts in countries where ESG reporting is already mandatory
ESG metrics are more commonly included in compensation contracts in countries where ESG reporting is already mandatory
Stock grants, including restricted stock and performance shares, aim to align executive and shareholder interests, attract, retain, and motivate employees, and create wealth
Stock grants, including restricted stock and performance shares, aim to align executive and shareholder interests, attract, retain, and motivate employees, and create wealth
Determining executive compensation involves benchmarking and the use of compensation consultants by the compensation committee
Determining executive compensation involves benchmarking and the use of compensation consultants by the compensation committee
Firms linking ESG performance to executive compensation receive on average more favorable ESG scores from outside rating agencies
Firms linking ESG performance to executive compensation receive on average more favorable ESG scores from outside rating agencies
Employers are not interested in performance, retention, termination, and post-employment protection.
Employers are not interested in performance, retention, termination, and post-employment protection.
Long-term incentives are solely based on achievement of goals over a period exceeding one year.
Long-term incentives are solely based on achievement of goals over a period exceeding one year.
Stock grants, including restricted stock and performance shares, aim to align executive and shareholder interests, attract, retain, and motivate employees, and create wealth.
Stock grants, including restricted stock and performance shares, aim to align executive and shareholder interests, attract, retain, and motivate employees, and create wealth.
Short-term incentives include bonus compensation, but not base salary.
Short-term incentives include bonus compensation, but not base salary.
Compensation determination involves estimating company value creation, CEO's attributable efforts, and fair compensation percentage.
Compensation determination involves estimating company value creation, CEO's attributable efforts, and fair compensation percentage.
Incentive-based compensation does not raise concerns about pay-for-performance sensitivity and the potential for excessive risk-taking.
Incentive-based compensation does not raise concerns about pay-for-performance sensitivity and the potential for excessive risk-taking.
Stock options always align managers' goals with shareholders' goals.
Stock options always align managers' goals with shareholders' goals.
ESG metrics are rarely included in compensation contracts in countries where ESG reporting is already mandatory.
ESG metrics are rarely included in compensation contracts in countries where ESG reporting is already mandatory.
The inclusion of a measure specifically related to emissions in the contract is associated with a decrease in carbon emissions.
The inclusion of a measure specifically related to emissions in the contract is associated with a decrease in carbon emissions.
Various countries have the same regulations and legislation governing executive compensation, influencing compensation strategies.
Various countries have the same regulations and legislation governing executive compensation, influencing compensation strategies.
Fractional ownership as a measure of incentives is not problematic because firms differ in size and CEOs differ in their wealth.
Fractional ownership as a measure of incentives is not problematic because firms differ in size and CEOs differ in their wealth.
The main purpose of a compensation plan is to provide the right incentives.
The main purpose of a compensation plan is to provide the right incentives.
Study Notes
Executive Compensation and Managerial Temptations
- Employers aim to attract, retain, and motivate employees in line with corporate strategy and risk profile, while aligning their interests with shareholders.
- Employers are interested in performance, retention, termination with minimal financial and legal impact, and post-employment protection.
- Employees are interested in compensation, employment security, and flexible post-employment termination.
- Managerial temptations include putting personal needs before stakeholders' needs, especially if not effectively monitored by shareholders and the board.
- Self-serving managerial actions include shirking, hiring friends, consuming excessive perks, and taking excessive or no risks.
- Compensation determination involves estimating company value creation, CEO's attributable efforts, and fair compensation percentage.
- Compensation levels are practically determined through benchmarking and input from remuneration committees and compensation consultants.
- Short-term incentives include base salary, which provides security and predictable income, and bonus compensation based on performance goals.
- Bonus compensation aims to motivate performance and align executives with the company's short-term objectives, with common measures such as earnings, revenue, and cash flow.
- Long-term incentives are based on achievement of goals over a period exceeding one year and may be based on stock price or business performance.
- Stock grants, including restricted stock and performance shares, aim to align executive and shareholder interests, attract, retain, and motivate employees, and create wealth.
- Stock options align managers' goals with shareholders' goals, but can lead to increased risk-taking and dilution, and are not always tied to the company's financial performance. Other compensations include perquisites, retirement compensation, and severance pay.
Executive Compensation and Corporate Governance
- Severance multiples for executives have declined over time, as perks represent a diminishing portion of total compensation.
- Share ownership guidelines require executives to hold a certain number of shares, often defined as a multiple of base salary.
- Clawback policies give companies the right to recover incentive compensation if performance was based on erroneous information.
- The CEO pay ratio requires disclosure of the median total annual compensation of all employees and the ratio of employee median to CEO total compensation.
- Determining executive compensation involves benchmarking and the use of compensation consultants by the compensation committee.
- In 2018, Nokia complied with the Finnish Corporate Governance Code, except for restricted share plans lacking performance criteria.
- Various countries have different regulations and legislation governing executive compensation, influencing compensation strategies.
- Incentive-based compensation raises concerns about pay-for-performance sensitivity and the potential for excessive risk-taking.
- Theories explaining CEO compensation include rent extraction, competitive pay, managerial power, management talent, technology change, and general managerial skills.
- Potential incentive problems with accounting-based and stock option incentives include manipulation of accounting results and excessive risk-taking.
- An international perspective on CEO compensation shows variations in the percentage of fixed and variable pay across different countries.
- Research has shown that executive compensation is influenced by factors such as fractional ownership, managerial talent, and technology change.
Executive Compensation and Managerial Temptations
- Employers aim to attract, retain, and motivate employees in line with corporate strategy and risk profile, while aligning their interests with shareholders.
- Employers are interested in performance, retention, termination with minimal financial and legal impact, and post-employment protection.
- Employees are interested in compensation, employment security, and flexible post-employment termination.
- Managerial temptations include putting personal needs before stakeholders' needs, especially if not effectively monitored by shareholders and the board.
- Self-serving managerial actions include shirking, hiring friends, consuming excessive perks, and taking excessive or no risks.
- Compensation determination involves estimating company value creation, CEO's attributable efforts, and fair compensation percentage.
- Compensation levels are practically determined through benchmarking and input from remuneration committees and compensation consultants.
- Short-term incentives include base salary, which provides security and predictable income, and bonus compensation based on performance goals.
- Bonus compensation aims to motivate performance and align executives with the company's short-term objectives, with common measures such as earnings, revenue, and cash flow.
- Long-term incentives are based on achievement of goals over a period exceeding one year and may be based on stock price or business performance.
- Stock grants, including restricted stock and performance shares, aim to align executive and shareholder interests, attract, retain, and motivate employees, and create wealth.
- Stock options align managers' goals with shareholders' goals, but can lead to increased risk-taking and dilution, and are not always tied to the company's financial performance. Other compensations include perquisites, retirement compensation, and severance pay.
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Description
Test your knowledge of executive compensation and managerial temptations with this quiz. Explore topics such as performance-based incentives, stock grants, and the alignment of executive and shareholder interests. Gain insights into the complexities of compensation determination and the potential pitfalls of self-serving managerial actions.
