Fahlenbrach and Stulz (2011) stated that bank CEO incentives can't be answerable for the credit crisis, as their incentives appeared to be aligned with their interest of their shareholders. Find no evidence that they performed better (Fahlenbrach and Stulz 2011). Fahlenbrach & Stulz (2011) discover verification that banks with higher shareholder- management incentive alignment, options holdings or through stock executed worse during the financial crisis. They conclude, “This evidence recommends that CEOs took exposures that they feel were profitable for their shareholders ex ante but that these exposures performed very poorly ex post. Fahlenbrach and Stulz discover no evidence that the incentive arrangement of senior management lead to risk-taking that benefitted themselves at the expense of stakeholders or shareholders in the firms. Instead, they argue that given the important stakes held in their firms by senior management, their long-term interests were suitably aligned to those of the stockholders. Bank with grater- option and larger fraction compensation in bonuses for their CEOs did not perform worse during the crisis. A current study by Fahlenbrach and Stulz (2009) of a sample of bank CEOs reports that base salaries constitute only about 10% of total compensation, and that the wealth of these CEOs increases by an average of about $24 for every $1,000 of shareholder value created. And this, of course, represents a dramatic improvement in the original estimates reported by Jensen and Murphy. Fahlenbrach and Stulz (2011) note that the top five best paid executives in financial services in 2006 were CEOs of Lehman brothers, Bear Stearns, Merrill lynch, Morgan Stanley and country Finance. Only one of these companies survived cri...
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The emergency rescue of the Royal Bank of Scotland in 2008 has cost the UK government thus the British taxpayer a huge amount of money. Many people are upset about the high bonuses the RBS management board have received, both because of the outrageously high amount and because the performance of the bank on the long-term was not good at all. According to the agency theory managers do not always act in the interest of the shareholder, but often act in the interest of themselves. The downfall of RBS could have been prevented if managers were not paid out a bonus based on their performance of one year, but rather a combination of a bonus based on their performance of multiple years and a bonus ...
Conversely, we see Jim Taylor, a CEO, with obvious wealth, power and control (Smith, director, 2015). Jim’s position as CEO is understandably extremely stressful, but he is empowered to make decisions and has control and access to a substantial amount of resources. Like Corey, Jim also has high demands, however Jim has high control, which makes all the difference (Smith, director,
Jake Clawson Ethical Communication Assignment 2/13/2014. JPMorgan Chase, Bailouts, and Ethics “Too big to fail” is a theory that suggests some financial institutions are so large and so powerful that their failure would be disastrous to the local and global economy, and therefore must be assisted by the government when struggles arise. Supporters of this idea argue that there are some institutions that are so important that they should be the recipients of beneficial financial and economic policies from government. On the other hand, opponents express that one of the main problems that may arise is moral hazard, where a firm that receives gains from these advantageous policies will seek to profit by it, purposely taking positions that are high-risk, high-return, because they are able to leverage these risks based on their given policy. Critics see the theory as counter-productive, and that banks and financial institutions should be left to fail if their risk management is not effective.
In the midst of the current economic downturn, dubbed the “Great Recession”, it is natural to look for one, singular entity or person to blame. Managers of large banks, professional investors and federal regulators have all been named as potential creators of the recession, with varying degrees of guilt. No matter who is to blame, the fallout from the mistakes that were made that led to the current crisis is clear. According to the Bureau of Labor Statistics, the current unemployment rate is 9.7%, with 9.3 million Americans out of work (Bureau of Labor Statistics). Compared to a normal economic rate of two or three percent, it is clear that the decisions of one group of people have had a profound affect on the lives of millions of Americans. The real blame for this crisis rests on the heads of the managers that attempted to play the financial system through securitization, and forced the American government to “bail out” their companies with taxpayer money. These managers, specifically the managers of AIG and Citigroup, should be subject to extreme pay caps for the length of time that the American taxpayer holds majority holdings in their companies, as a punitive punishment for causing the Great Recession.
Cabral, R. (2013). A perspective on the symptoms and causes of the financial crisis. Journal of Banking & Finance, 37, 103-117
CEO compensation has been a heated debate for many years recently, and it can be argued that they are either overpaid or that there payment is justified by the amount of work they do and their performance. To answer the question about whether CEO compensation is justified it must be looked at by the utilitarian viewpoint where the good of many outweighs the good of one. It is true that many CEO’s are paid an exorbitant amount of money; however, their payment is justified by the amount of money that they bring back to the company and the shareholders. There are many factors that impact the pay that the CEO receives according to Shah et.al CEO compensation relies on more than just the performance of the CEO, there are a number of factors that play a rule in the compensation of the CEO including the fellow people who help govern the corporation (Board of Directors, Audit Committee), the size of the company, and the performance that the CEO accomplishes (2009). In this paper the focus will be on the performace aspect of the CEO.
Mostly due to the large scandals in the late 1990s and early 2000s, like the Enron epidemic, most larger companies want to avoid any disasters that might even duarf in comparison to what we have seen in the past. Another powerful driving force behind CEOs’ popularity was the inception of the 2002 Sarbanes-Oxley Act, this act established new standards for corporate accountability in America. Requiring companies to not only make stronger commitments to ethical st...
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Steverman,B. and Bogoslaw, D. (2008) ‘The financial crisis blame game’, Business week, October [Online]. Available at: http://www.businessweek.com/investor/content/oct2008/pi20081017_950382.htm?chan=top+news_top+news+index+-+temp_top+story (Accessed: 1st August 2010).
Attracting and retaining the most talented employees is essential for long-term organizational success. An important component to attracting and retaining such employees is the design and implementation of an effective compensation and benefit system. Assuming the role of a highly regarded human resource consultant hired to review, analyze, and revise the compensation and benefit system utilized by my city’s largest employer, Holland Enterprises, this paper presents a revised compensation and benefit strategy that suits the firm. This proposal describes how an effective compensation and benefit system could contribute to organizational effectiveness in the firm, the principle components of the revised compensation and benefit system for the
Formalized compensation goals serve as guidelines for managers to ensure that wage and benefit policies achieve their intended pur¬pose. The more common goals of compensation policy include to reward employees’ past performance, to remain competitive in the labor market, to maintain salary equity among employees, to motivate employees’ future performance, to maintain the budget, to attract new employees, and to reduce unnecessary turnover. It is important for the organ...
Meyer, H. H. (1975). The Pay-for-Performance Dilemma. Organizational Dynamics, 3, 39-50. Print. 8 Feb. 2014.
Henderson, R. I. (2006). Compensation Management in a Knowledge-Based World, 10th Edition. Pearson Learning Solutions). . Retrieved from http://online.vitalsource.com/#/books/0558582451/
Zingheim, P.K.(2000),’’Rewarding Scarce talent’’. In Berger L.A and the art guide to compensation strategy and design, 4th edition New York. McGraw Hill.