Mechanisms for Incentivizing Top Managers of the Company in the Long Term

Motivating and rewarding company employees requires constant development and improvement the remuneration of the top management of the company is especially difficult. For this, compensation plans are being developed, which can be conditionally divided into two groups: bonus and stock-based option programs. Bonus programs provide for large-scale remuneration of managers based on the company’s performance in the current year. Compensation plans that reward top management with shares are effective. Such programs are developed only for selected top managers who have a direct impact on the financial results of the company.The purpose of the study is to substantiate the optimal mechanisms for remunerating top managers in Russian conditions and to determine the directions for the development of compensation plans. The object of the research is the mechanisms of involvement and motivation of managers. The subject of the research is the remuneration of the top managers of the company. Methods and methodology of work. General scientific methods were used, such as analysis, synthesis, method of classification and typology, generalization, abstraction, modeling. It has been established that in Russia it is advisable to use «phantom» shares because the domestic legislative framework does not define the mechanisms of reward with shares as broadly as is customary in developed countries. It is also recommended to apply bonus programs with payments in installments for 2–3 years. Directions have been identified to improve the effectiveness of bonus and option compensation plans in Russia.

Restricted Stock is on the Rise: What Does this Mean for Whistleblowing?

The use of restricted stock compensation to supplement or to give a bonus to executives is on the rise. What happens when things go wrong? Research finds that those in private companies are less likely to whistleblow than those in public companies overall. Literature also reveals that restricted stock may positively influence whistleblowing when large financial rewards are present. Further, vesting period and strike price influence whistleblowing for those with stock option compensation. Yet, little is investigated regarding whistleblowing related to the vesting period of the restricted stock and the type of organization -public or private- granting this compensation. We find that for those in public companies, whistleblowing tends to increase as the vesting period of the stock compensation is farther in the future. Those in private companies have the opposite behavior. Agency theory focused within whistleblowing theory helps resolve this seeming juxtaposition. Implications for practice and policy are offered.

THE VALUE OF BEING LUCKY: OPTION BACKDATING AND NONDIVERSIFIABLE RISK

The practice of executives influencing their option compensation by setting a grant date retrospectively is known as backdating. Since executive stock options are usually granted at-the-money, selecting an advantageous grant date to coincide with a low stock price will be valuable to an executive. Empirical evidence shows that backdating of executive stock option grants was prevalent, particularly at firms with highly volatile stock prices. Executives who have the opportunity to backdate should take this into account in their valuation. We quantify the value to a risk averse executive of a lucky option grant with strike chosen to coincide with the lowest stock price of the month. We show the ex ante gain to risk averse executives from the ability to backdate increases with both risk aversion and with volatility, and is significant in magnitude. Our model involves valuing the embedded partial American lookback option in a utility indifference setting with key features of risk aversion, inability to diversify and early exercise.

In the Nick of Time: Performance-Based Compensation and Proactive Responses to the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act of 2017 (TCJA) introduced two major changes that may influence executive compensation: (1) reducing corporate tax rates from 35 to 21 percent and (2) eliminating the performance-based pay exception in Section 162(m). These changes provide incentives to maximize deductible compensation expense in 2017, before the TCJA goes into effect. Consistent with our expectation, we find that the increase in CEO bonus and stock option compensation is significantly greater in 2017 relative to prior years. Our difference-in-difference results are consistent with the tax rate reduction driving the bonus increase and the repeal of the performance-based exception leading to the increase in CEO stock options. The TCJA also changed the definition of covered employees to include the CFO. We find weak evidence for abnormal increases in CFO performance-based compensation. Overall, our findings suggest that firms' responded to the TCJA in the period before it was effective.

Option Compensation and Optimism Bias in Management Earnings Forecasts

We examine the relation between the option compensation received by corporate managers and the extent of optimistic bias in their earnings forecasts. Specifically, we are interested in the extent to managers with a high amount of option compensation tend to have a self-serving optimism. We examine whether there is evidence consistent with the argument that managers have a self-serving interest to issue optimistic forecasts since their compensation is a function of stock price and higher earnings usually result in a higher share price. We hypothesize that management’ optimism (optimistic bias in their earnings forecasts) increases as their stock option compensation increases. Our empirical evidence indicates that highly compensated managers are associated with the likelihood of issuing upwardly biased (i.e. more optimistic) earnings forecasts.

DAMPAK STRUKTUR MODAL PADA SENSITIVITAS PENERAPAN KOMPENSASI OPSI SAHAM KARYAWAN TERHADAP KINERJA

This study aims to test whether the management that receive compensation in the form of stock options having an positive impact on company performance. This study considers the external performance measurement by identifying Cumulative Abnormal Return (CAR). In addition, this study aims to test whether the company's capital structure affects the sensitivity level of employee stock option compensation and firm performance. Capital structure is measured with debt to equity ratio. The result indicates that the proportion of Employee Stock Option Plan (ESOP) influence company performance in accordance with the predictions. This shows that the more stock options offered to employees then came a sense of belonging which resulted in more motivated managers to improve company performance. Furthermore, the higher the market performance of companies that can be achieved, the higher the profit (gain) will be obtained by the recipient of stock options. In addition, this study also shows that the impact of stock option grants at the company's performance declined with the greater capital structure of liability. This shows that the capital structure of liabilities will lower the sensitivity level of employee stock option compensation and firm performance. The higher the company's liabilities would reduce the rights of the owner of the dividends each period in accordance with the ownership of shares held since the company must take into account the interest costs to be paid to the creditor.