The Case for Stock Buybacks

If paying excessive CEO salaries is the most maligned use of corporate funds, stock buybacks may well take second place. Conventional wisdom is that CEOs buy back stock to manipulate the short-term stock price. They fund the buyback by cutting investment, and so firm value suffers in the long-term. As Senator Elizabeth Warren argued, “stock buybacks create a sugar high for the corporations. It boosts … [ Read more ]

Is CEO Pay Really Inefficient? A Survey of New Optimal Contracting Theories

The authors argue that executive compensation is set by CEOs themselves rather than boards on behalf of shareholders, since many features of observed pay packages may appear inconsistent with the standard optimal contracting theories. However, it may be that the simple models do not capture several complexities of real-life settings. This paper surveys recent theories that extend traditional frameworks to incorporate these dimensions, and show … [ Read more ]

Incentives for the Long Run: An Executive Compensation Plan That Looks Beyond the Next Quarter

Executive compensation packages that provide huge payouts for short-term stock-market gains have been blamed for playing a role in the risky behavior that triggered the continuing financial crisis. In a new research paper, a Wharton professor and several colleagues say they have come up with something better: A compensation structure based on long-term escrow accounts.