EXECUTIVE COMPENSATION. Class Announcements  Assignment #8 due March 17 th (today); available on- line  Assignment #9 due March 24 th ; available on-line.

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Presentation transcript:

EXECUTIVE COMPENSATION

Class Announcements  Assignment #8 due March 17 th (today); available on- line  Assignment #9 due March 24 th ; available on-line  Research Paper Part #4 due April 3rd  Business Banquet - April 2nd – 5:45-8pm, Catering - Gabrieau's Bistro; Keynote Speaker - Annette Verschure n, Past President of Home Depot for Canada and Asia

Class Objectives 1. Investigate Executive Compensation Schemes of Canadian Public Companies 2. Dissect the elements that comprise the compensation agreement of CEO’s of Canadian public companies

Agency Theory: Definition  “Agency theory is branch of game theory that studies the design of contracts to motivate a rational agent to act on behalf of a principal when the agent’s interest would otherwise conflict with those of the principal.”

Agency Theory  In agency theory, people are assumed to be rational profit maximizing individuals who will promote self interest.  Agents:  Self-Interested Have alternative opportunities of use of their time Choose actions that maximize own expected utility (adverse selection)  Effort-adverse (moral hazard) Tendency to shirk (moral hazard)  Risk Adverse

Executive Compensation  An executive compensation plan is  an agency contract between the firm and its manager  attempts to align the interests of owners and manager  details the manager’s compensation (bonus, shares, options, salary, benefits, memberships, etc.)  bases on one or more measures (net income and share price) of the manager’s effort in operating the firm.

Executive Compensation: Elements  Several compensation components  Time Horizon  Mix of short term and long term incentive components – balance reward based on current year’s performance and a longer manager decision horizon  Share Ownership  Risk Profile  Risk – upper (i.e.. cap) and lower (i.e.. bogey) limits limit variation in executive compensation caused by uncontrollable events in economy or industry  Incentive  Threshold levels of performance measures – accounting and market based measures  Incentive effects - apparent and measurable  Net income and share price are compliments

Executive Compensation Worksheet – SCHW 252  Review the executive compensation in the Management Information Circular (latest) available on Sedar.com for:  Shoppers Drug Mart Corporation (a-d)  Ritchie Bros. Auctioneers Incorporated (f-g)  Canadian Tire Corporation Limited (h-l)  Dollarama (m-o)  Highliner Foods (p-z)

Executive Compensation Worksheet – SCHW 252

Class Objectives - Revisited 1. Investigate Executive Compensation Schemes of Canadian Public Companies 2. Dissect the elements that comprise the compensation agreement of CEO’s of Canadian public companies

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