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The facts about executive compensation Clementi and Cooley

This discussion from the 16th Dubrovnik Economic Conference in June 2010 analyzes executive compensation, highlighting the significant wealth accumulation of top CEOs tied to firm performance. Despite the dispersion in earnings, there is no clear trend in CEO compensation, with pay often correlated to stock prices. The implications of capping salaries and bonuses are debated, raising questions about the justification of top CEO salaries and golden handshakes. The paper emphasizes the need for further transparency and cross-country analysis to inform regulatory decisions.

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The facts about executive compensation Clementi and Cooley

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  1. The facts about executive compensationClementi and Cooley Discussion by Athanasios Vamvakidis 16th Dubrovnik Economic Conference June 2010

  2. Main Contribution: • Takes into account total CEO wealth tied to firm Main Results:

  3. Top CEOs are paid like superstars…

  4. …CEOs even loose money; remarkable dispersion in between

  5. No clear trend in CEO compensation

  6. Compensation driven by performance; link has not been weakened over time

  7. Results driven by company stock prices

  8. Main implication: capping salaries and bonuses misplaced

  9. A very good paper • Very well written • Clear contributions • Interesting and controversial results • A number of robustness tests

  10. But: • To what extent do compensation schemes take wealth linked to firm into account? • Isn’t the CEOs’ amount of wealth linked to firm also their decision? • Shouldn’t compensation-performance regressions include lags? Can we get results if they do? • How about bubble companies that eventually fail? • Wouldn’t Enron’s CEOs fit the results perfectly • What if profit instead of shareholder gain is on LHS? • Small R2suggests there is a lot we still don’t know Still open issues:

  11. Transparency

  12. Are top CEO salaries justified? “They rise on the backs, not the shoulders, of those beneath them”, winner in infographic contest sponsored by “Capitalism: a love story”

  13. Are golden handshakes justified?

  14. What can we learn from cross-country evidence?

  15. Regulate or not regulate? That is the question

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