Executive Compensation
EXECUTIVE COMPENSATION AND FIRM PERFORMANCE
DOES EXECUTIVE COMPENSATION INCREASE FIRM PERFORMANCE?
Sietse Compagner, Gibran Borst, Tom Bleijenberg
Introduction
The current state of the economy raises questions about executive compensation. Although the debate on whether or not bonuses are worth their while has been going on for a long time, a recent development made it even harder for firms to justify the salaries that are paid to executives. The development in question is the collapse of the real estate market in 2008. From that point on, the economic growth decreased and firms started to struggle for their survival. Probably the most well known example is the bailout of the ‘big three’, (GM, Ford and Chrysler) by the US government. Ever since the economy went into a recession, it is questioned more than ever whether the benefits of paying CEO’s excessive bonuses, outweighs the costs of such bonuses.
The central goal of this paper is to examine whether such compensations have the desired effects, or are just simply necessary. Therefore, the research question will be: ‘Does executive compensation increase firm performance?’. Those who oppose to these compensations, often argue that when a company struggles to stay in business, a well paid executive can be the end of its very existence.
Corporations have a different opinion, they often claim that they do not have a choice. ‘If we don’t pay up, our smartest minds will jump to our rivals’, is a common used argument among firms. Both sides have valid arguments, and that is the main source of the everlasting discussion.
We will try to give an answer to our research question, based on results of earlier studies. The base of our information will be a series of research papers. We will summarize these articles and compare the conclusions, in order to obtain a conclusion that answers our research question.
We will start our research with an article about the effect of executive compensation on short term
DOES EXECUTIVE COMPENSATION INCREASE FIRM PERFORMANCE?
Sietse Compagner, Gibran Borst, Tom Bleijenberg
Introduction
The current state of the economy raises questions about executive compensation. Although the debate on whether or not bonuses are worth their while has been going on for a long time, a recent development made it even harder for firms to justify the salaries that are paid to executives. The development in question is the collapse of the real estate market in 2008. From that point on, the economic growth decreased and firms started to struggle for their survival. Probably the most well known example is the bailout of the ‘big three’, (GM, Ford and Chrysler) by the US government. Ever since the economy went into a recession, it is questioned more than ever whether the benefits of paying CEO’s excessive bonuses, outweighs the costs of such bonuses.
The central goal of this paper is to examine whether such compensations have the desired effects, or are just simply necessary. Therefore, the research question will be: ‘Does executive compensation increase firm performance?’. Those who oppose to these compensations, often argue that when a company struggles to stay in business, a well paid executive can be the end of its very existence.
Corporations have a different opinion, they often claim that they do not have a choice. ‘If we don’t pay up, our smartest minds will jump to our rivals’, is a common used argument among firms. Both sides have valid arguments, and that is the main source of the everlasting discussion.
We will try to give an answer to our research question, based on results of earlier studies. The base of our information will be a series of research papers. We will summarize these articles and compare the conclusions, in order to obtain a conclusion that answers our research question.
We will start our research with an article about the effect of executive compensation on short term