The facts about executive compensation Clementi and Cooley

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Presentation transcript:

The facts about executive compensation Clementi and Cooley Discussion by Athanasios Vamvakidis 16th Dubrovnik Economic Conference June 2010

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

Top CEOs are paid like superstars…

…CEOs even loose money; remarkable dispersion in between

No clear trend in CEO compensation

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

Results driven by company stock prices

Main implication: capping salaries and bonuses misplaced

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

But: Still open issues: 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 R2 suggests there is a lot we still don’t know Still open issues:

Transparency

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”

Are golden handshakes justified?

What can we learn from cross-country evidence?

Regulate or not regulate? That is the question