Unformatted text preview: : Can a direct relationship be established between the Executive’s (or Board’s) decisions and shareholder value?
What wealth incentives are created by the compensation program? (Perceived value)
What wealth incentive is desired to effectively incent increased shareholder value? How should wealth incentives be financed? Higher shareholder cost? Copyright 2013
Greater retention risk? Question:
Can we learn from the ‘partnership model?’
– General Partner at risk
– Limited Partner Similar to shareholder, but severely limited liquidity Copyright 2013
Copyright 2013 Consider: ‘The history of LBO’s and entrepreneurs who leave big companies and start small ones is is it largely and history of inadequate wealth incentives.’ Strong wealth incentives are needed to maximize shareholder value
Copyright 2013 If managers try to maximize their wealth (not current income) then what are the implications for corporate governance? Options:
– Large up front competition at risk over projected career?
– Annual stock options based on past performance and current risk?
– Competitive salary and incentives that rest upon attainment of goals? WHY? Copyright 2013
Copyright 2013 The Cadbury Model:
Reads like an accountants perspective Management requires more than compliance with process Process can be inefficient – Precedent for code in another context (Sullivan Principles) Copyright 2013
Copyright 2013 Cadbury Con’t:
Value v. Cost – Board should retain ‘effective control’ Monitor management – ‘Independent element on Board where Chair is also CEO
– NonExecutive Directors should be capable of influencing decisions
– Board should set the agenda for meeting as necessary to ensure their control Should the board adopt a governance strategy? Publish Review
Risks of best practice v. strategy, objective driven
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This document was uploaded on 01/28/2014.
- Winter '14