Corporate governance and ethics: Executive compensation.

Introduction

What will you learn in this course?

The way in which executive directors are paid can influence how they run the business.

• Remuneration committees have to devise schemes that will align directors´ interests with those of shareholders
• Many companies adopt a short-term bonus scheme for their executives.
• Together with a longer-term scheme that may be based on share options.
• The performance conditions attached to these schemes generally relate to accounting measures.
• However, these can bear little relation to the creation of shareholder value
• And shareholder return is not necessarily related to management performance.
• Furthermore, even when the performance measures have been selected, the company needs to set relevant targets.
• Finally, the scheme parameters must set a currency for the payment of the award: in cash, or in shares or options.