Overview

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. The module will help to develop understanding by considering whether theoretical predictions are supported by empirical evidence.

Learning Outcomes

• Appreciate how board diversity and director heterogeneity can affect firm performance outcomes.

• Critically evaluate whether executive compensation arrangements had failed and were a causal factor in the global banking crisis of 2008-09.

• Demonstrate comprehension of 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.

• 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.

• Review regulatory actions and proposals to reform compensation arrangements including the emerging importance of corporate culture within firms.