Sunday, January 17, 2010
Paying for Long-Term Performance, by Lucian A. Bebchuk, Harvard University - Harvard Law School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI), and Jesse M. Fried, Harvard Law School, was recently posted on SSRN. Here is the abstract:
Firms and regulators around the world are now seeking to ensure that the compensation of public company executives is tied to long-term results to avoid creating incentives for excessive risk-taking. This paper analyzes how this objective can be best achieved. Focusing on equity-based compensation, the primary component of executive pay packages, we identify how such compensation could be best structured to tie remuneration to long-term results rather than short-term gains that might turn out to be illusory. We also analyze how equity compensation could be best designed to prevent the gaming of equity grants at either the front-end or the back-end.