O. (Olga) Khalina MSc

Executive compensation is one of the most hotly debated issues in both the financial press and the academic literature. Agency theory predicts that making executive pay more sensitive to firm performance helps to align the interests of managers with those of shareholders (Jensen and Meckling, 1976).  However, Bebchuck and Fried (2004) argue that current compensation levels are better explained by managerial rent-seeking. One remedy against rent-seeking behavior lies in more transparent disclosure about executive pay policy. Recently, US companies have to disclose a comprehensive narrative discussion and analysis of compensation entitled “Compensation Discussion & Analysis” or CD&A. The first project examines the relation between corporate characteristics and executive compensation disclosures. Which companies are more likely to disclose more information? What determines the quality of CD&A disclosure? The second project examines whether the quality of CD&A disclosure is related to pressure from the press or active institutional shareholders. Do active shareholders or news coverage that voice concerns about executive pay lead to better CD&A disclosure?  Do strong corporate governance structures help to design executive compensation packages that are more in line with shareholders’ interests? The third project deals with relative performance evaluation and stock option plan design. The CD&A also allows us to investigate to which extent companies use relative performance targets that need to be met before options can be exercised. Do companies with more ambitious performance targets perform better? Do more independent compensation committees set more difficult to achieve target performance levels? Does the use of relative performance evaluation help to mitigate the dark side of options such as earnings management?