Tod Perry

Pay for performance? Government regulation and the structure of compensation contracts

A gas flow cartridge in which to conduct a coagulation-related test uses an elongated pin member movably positioned within a communication opening which separates a reagent chamber from a reaction chamber. A first portion of the pin member has an operative configuration for sealing the communication opening when the first portion is positioned in the communication opening. A second longitudinally displaced portion of the pin member opens the communication opening to further communication therethrough upon longitudinal movement of the pin member. At the commencement of an analytical test, a plug member is moved upwardly to contact the pin member and move the first portion out of the communication opening and the second portion into the communication opening. The upward movement of the lower plug member forces the contents of the reagent chamber through the opened communication opening and into the reaction chamber. A pointed needle-like member pierces a membrane of the lower plug member and injects gas into the cartridge. The gas also flows through the opened communication opening.

Incentive Compensation for Outside Directors and CEO Turnover

As monitors of management, independent outside directors play an important oversight and monitoring role in corporate governance. By providing directors with a financial stake in the performance of the firm through incentive-based compensation, firms can align the interests of directors and shareholders. In this paper, I examine whether the structure of director compensation affects CEO turnover, a specific corporate event where directors play a crucial role. I document a substantial increase in the use of incentive-based compensation for directors. I also find that incentive compensation for directors influences the level of monitoring by the board. When directors of independent boards receive incentive compensation, the like lihood of CEO turnover following poor performance increases. I also find that the likelihood of a firm adopting a stock-based incentive plan for directors is positively related to the fraction of independent directors on the board and institutional ownership of the firm, which is consistent with firms adopting option and stock plans for directors to provide financial incentives for directors to monitor management.

Do Boards Affect Performance? Evidence from Corporate Restructuring*

We examine the effect of board composition on the restructuring activities of a sample of 94 firms that experienced a material decline in performance. We document that firms with a majority of outside directors on the board are more likely to initiate asset restructuring and employee layoffs and that the reduction in the scale of operations is larger for these firms than firms without a majority of outside directors. We also find subsequent improvements in operating performance for firms with a majority of outside directors that restructure and conclude that board composition has a material impact on corporate performance.

CEO Compensation in the 1990s: Shareholder Alignment or Shareholder Expropriation?

CEO compensation has been much debated in the 1990s, both in academic circles and in the media. We contrast two views on CEO compensation. The first view is that there has been a very positive trend in CEO compensation - that compensation committees have become more responsive to shareholder requests to better link compensation and performance. This trend may have been, at least in part, responsible for the incredible stock returns of the last few years. The contrasting view states that the strong stock market of the last few years has allowed CEOs to obtain excessively high financial rewards at the expense of largely powerless shareholders. We discuss these views and provide evidence that corroborates both positions. While we are unable to side with one view or the other beyond a reasonable doubt, we speculate that a downturn in the economy will allow researchers to identify which position dominates.

Mountain or Molehill? The Pervasiveness of Overstated Earnings Through the Expected Rate of Return on Defined Benefit Pension Plan Assets

Using a sample of firms over the period of 1991 through 2005, we examine the expected rate of return (ERR) assumption associated with defined benefit pension plans. The evidence suggests that contrary to suggestions in the business press, the ERR is not overstated relative to several benchmarks including contemporaneous actual returns, historical cumulative actual returns and expected future returns based on asset allocation within the pension. We also find that changes in the ERR are infrequent, typically have less than a 1% impact on operating income and are positively related to differences between estimated and actual ERRs. When we examine firms with the highest ERRs or with the most opportunity to inflate earnings, we find they are no more likely to boost earnings through the ERR than other firms. We conclude that the evidence suggests overstated earnings through the ERR is not pervasive or material, which helps regulators assess the costs and benefits of eliminating this discretion in financial reporting.