Ebook Does “Long-Term Compensation” Make CEOs Think Long-Term? A Study of CEO Compensation in the Commercial Banking Industry

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Submitted by wulan on Thu, 06/03/2010 - 08:43

Executive
compensation never fails to make
headlines in a time of crisis. Since 2007, in the wake of the mortgage
market meltdown, pay packages in the financial industry have come under increased fire. President
Obama called Wall Street bonuses
“the height of irresponsibility” and described them as “shameful”.
Missouri Senator Claire McCaskill introduced legislation to cap
executive compensation at firms that accepted federal bailout money.
When performance sinks, the public, employees, and shareholders want to
see it reflected in the top spot’s paycheck.

Is this criticism justified, though? Most of the condemnation focuses
on the dollar amount of CEO pay. However, as Jensen and Murphy point
out, the amount of payment is not nearly as important as the method.
Shareholders presumably want their managers to guide their firm to
long-term health and success. The compensation mechanisms currently in
place are intended to ensure just that. JPMorgan Chase, for example,
describes the principles behind its executive compensation plan as “an
acute focus on performance, alignment with shareholder interests, a
sensitivity to the relevant market place and a long-term orientation”
(emphasis added).