Run by Bangor Business School
15 Credits or 7.5 ECTS Credits
Organiser: Prof Jon Williams
Overall aims and purpose
This module provides an in-depth analysis of executive compensation arrangements. It considers the incentive structures that are implicit in executive compensation contracts and how such incentives affects the behaviour and performance of the Chief Executive Officer (CEO) and other executives sitting on the board of directors. The module examines the notion of director heterogeneity and discusses how the individual characteristics of executives, such as, age, experience, education, nationality and gender could affect behaviour and firm performance outcomes. The module considers whether large or small pay differentials between CEO and other executives’ benefits firm performance. Focusing on the banking industry, the module discusses claims that compensation arrangements were a casual factor in the global banking crisis of 2008-09 before examining regulatory responses and initiatives on compensation since the crisis. Lastly, the module introduces the role of corporate culture.
Executive Compensation will provide a reader on the many exciting but often unexplained features of how firms remunerate their executive officers. Drawing on economic theory the module will examine how executive compensation contracts provide incentives for executives to behave in specific ways, what the benefits are of a heterogeneous board of directors, what effects might one expect from gender differences, how firms can set their compensation policy to enhance effort, and the increasing importance of culture in affecting executive behaviour and firm performance. It will also discuss recent regulatory actions and other reforms designed to reform executive compensation. The module will help to develop understanding by considering whether theoretical predictions are supported by empirical evidence.
B- to B+ (60-69%) In addition to the above, an ability to write analytically on specific issues.
C- to C+ (50-59%) A basic knowledge of course material.
A- to A* (70%+) In addition to the above, the ability to illustrate and enhance arguments and analyses through the use of relevant supporting evidence drawn from the established literature.
Comprehend how board diversity and director heterogeneity can affect firm performance outcomes.
Synthesise and analyse regulatory actions and proposals to reform compensation arrangements including the emerging importance of corporate culture within firms.
Exhibit a critical awareness of how the incentive structures that are implicit in executive compensation contracts affects the behaviour of executive officers, which, in turn, affects firm performance outcomes; and to consider whether firms can use compensation policy to deliver performance gains.
Critically evaluate whether executive compensation arrangements had failed and were a causal factor in the global banking crisis of 2008-09.
Interpret the theories that explain the growth in executive pay and why firms willingly reward their CEOs with what many commentators suggest is excessively large compensation packages.
Teaching and Learning Strategy
A weekly one-hour workshop.
A weekly two hour lecture.
Self-study based on the readings and reflection.
- Literacy - Proficiency in reading and writing through a variety of media
- Numeracy - Proficiency in using numbers at appropriate levels of accuracy
- Self-Management - Able to work unsupervised in an efficient, punctual and structured manner. To examine the outcomes of tasks and events, and judge levels of quality and importance
- Exploring - Able to investigate, research and consider alternatives
- Information retrieval - Able to access different and multiple sources of information
- Inter-personal - Able to question, actively listen, examine given answers and interact sensitevely with others
- Critical analysis & Problem Solving - Able to deconstruct and analyse problems or complex situations. To find solutions to problems through analyses and exploration of all possibilities using appropriate methods, rescources and creativity.
- Presentation - Able to clearly present information and explanations to an audience. Through the written or oral mode of communication accurately and concisely.
- Teamwork - Able to constructively cooperate with others on a common task, and/or be part of a day-to-day working team
- Argument - Able to put forward, debate and justify an opinion or a course of action, with an individual or in a wider group setting
- Self-awareness & Reflectivity - Having an awareness of your own strengths, weaknesses, aims and objectives. Able to regularly review, evaluate and reflect upon the performance of yourself and others
Subject specific skills
- knowledge of contemporary theories and empirical evidence concerning accounting in at least one of its contexts (for example, accounting and capital markets; accounting and the firm; accounting and the public sector; accounting and society; accounting and sustainability) and the ability to critically evaluate such theories and evidence age
- knowledge of theories and empirical evidence concerning financial management, risk and the operation of capital markets (in cases of degrees with significant finance content).
- Abstraction. From the study of economic principles and models, students see how one can abstract the essential features of complex systems and provide a useable framework for evaluation and assessment of the effects of policy or other exogenous events. Through this, the typical student will acquire proficiency in how to simplify while still retaining relevance. This is an approach that they can then apply in other contexts, thereby becoming more effective problem-solvers and decision-makers.
- Framing. Through the study of economics, a student should learn how to decide what should be taken as given or fixed for the purposes of setting up and solving a problem, i.e. what the important 'parameters' are in constraining the solution to the problem. Learning to think about how and why these parameters might change encourages a student to place the economic problem in its broader social and political context. This 'framing' skill is important in determining the decision-maker's ability to implement the solutions to problems.
- An appreciation of the nature of the contexts in which finance can be seen as operating, including knowledge of the institutional framework necessary for understanding the role, operation and function of markets and financial institutions (e.g. the economic, legal, regulatory and tax environment, both national and international; the firm; the capital markets and the public sector).
- A knowledge of the major theoretical tools and theories of finance, and their relevance and application to theoretical and practical problems (e.g. concept of arbitrage and examples of its use; financial mathematics and capital budgeting criteria; informational efficiency; optimal risk sharing; portfolio theory; asset pricing models and the valuation of securities; cost of capital; derivative pricing; risk management; information asymmetry; principal agency relationships; signalling; Fisher separation and capital budgeting criteria; behavioural finance; term structure and the movement of interest rates; determination of exchange rates and financial intermediation).
- An understanding of the relationship between financial theory and empirical testing, and application of this knowledge to the appraisal of the empirical evidence in at least one major theoretical area. The appraisal should involve some recognition of the limitation and evolution of empirical tests and theory (eg the efficient markets hypothesis; anomalies; pricing of derivatives and other securities; bond portfolio management; exchange rates; raising capital and capital structure).
- An understanding of the financing arrangements and governance structures of business entities, and an appreciation of how theory and evidence can be combined to assess the effectiveness and efficiency of such arrangements (e.g. decisions as to sources of finance and financial structure; the pricing of corporate securities; the market for corporate control; corporate governance structures and mechanisms; financial planning and international dimensions of finance).
- An understanding of the factors influencing the investment behaviour and opportunities of private individuals (bonds, equities, and derivatives; risk aversion; risk/return trade-offs; portfolio management and performance measurement; pensions and long term savings; the tax treatment of savings and investments; international diversification; forex risk; objectives of and constraints on institutional investors and advisors).
- An understanding of financial service activity in the economy, and an appreciation of how finance theory and evidence can be employed to interpret these services (for example, information asymmetry, adverse selection and moral hazard could be employed to analyse the fundamental nature of services, such as insurance, pensions, bank lending and consumer credit, and also explore fundamental problems arising in such financial service provision. Efficient market hypothesis could be used to explore evidence for fund manager performance and the effectiveness of equity and bond saving services).
- People management: to include communications, team building, leadership and motivating others.
- Ability to work with people from a range of cultures.
- Self reflection: self-analysis and an awareness/sensitivity to diversity in terms of people and cultures. This includes a continuing appetite for development.
Courses including this module
Compulsory in courses:
- N3CN: MBA Finance (10 month) year 1 (MBA/FIN10)
- N3CR: MSc Investment Management (10 month) year 1 (MSC/IMGT10)
Optional in courses:
- N3CH: MA Banking & Finance (Chartered Banker) year 1 (MA/BFCB)
- N3DC: MA Bank & Fin (Chart Bank) (with Incorporated Pre-Masters) year 1 (MA/BFCB1)
- N3AD: MBA Banking and Finance year 1 (MBA/BIF)
- N3DG: MBA Banking and Finance (with Incorporated Pre-Masters) year 1 (MBA/BIF1)
- N3BV: MBA Finance year 1 (MBA/FIN)
- N3DH: MBA Finance (with Incorporated Pre-Masters) year 1 (MBA/FIN1)
- N1BL: MBA International Business (with Incorporated Pre-Masters) year 1 (MBA/IBUS1)
- N1BG: MBA International Business year 1 (MBA/INTBUS)
- N2AF: MBA Law and Management year 1 (MBA/LMGT)
- N2BD: MBA Law and Management (with Incorporated Pre-Masters) year 1 (MBA/LMGT1)
- N2AN: MBA Management year 1 (MBA/M)
- N2BA: MBA Management (with Incorporated Pre-Masters) year 1 (MBA/M1)
- N3AX: MSc Banking and Finance year 1 (MSC/BANKFIN)
- N3CK: MSc Banking & Finance (Chartered Banker) year 1 (MSC/BFCB)
- N3CW: MSc Bank & Fin (Chartered Banking) (with Incorp Pre-Masters) year 1 (MSC/BFCB1)
- N3CS: MSc Banking and Finance (with Incorporated Pre-Masters) year 1 (MSC/BKFIN1)
- N3CC: MSc Investment Management year 1 (MSC/IMGT)
- N3CX: MSc Investment Management (with Incorporated Pre-Masters) year 1 (MSC/IMGT1)
- N2AY: MSc Management and Finance (with Incorporated Pre-Masters) year 1 (MSC/MANF1)
- N2AO: MSc Management and Finance year 1 (MSC/MANFIN)