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http://ssrn.com/abstract=1336978
 
 

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Reforming Executive Compensation: Focusing and Committing to the Long-Term


Sanjai Bhagat


University of Colorado at Boulder - Department of Finance

Roberta Romano


Yale Law School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

February 1, 2009

Yale Law & Economics Research Paper No. 374

Abstract:     
Executive compensation reform should lead to policies that are simple, transparent, and focused on creating and sustaining long-term shareholder value. We suggest that executive incentive compensation plans should consist only of restricted stock and restricted stock options, restricted in the sense that the shares cannot be sold or the option cannot be exercised for a period of at least two to four years after the executive’s resignation or last day in office. This will provide superior incentives for executives to manage corporations in investors’ longer-term interest, and diminish their incentives to make public statements, manage earnings, or accept undue levels of risk, for the sake of short-term price appreciation.

Number of Pages in PDF File: 11

Keywords: executive compensation, restricted stock, financial institution regulation, emergency economic stabilization act

JEL Classification: G21, G28, G30, G38, K22

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Date posted: February 4, 2009 ; Last revised: November 20, 2009

Suggested Citation

Bhagat, Sanjai and Romano, Roberta, Reforming Executive Compensation: Focusing and Committing to the Long-Term (February 1, 2009). Yale Law & Economics Research Paper No. 374. Available at SSRN: http://ssrn.com/abstract=1336978

Contact Information

Sanjai Bhagat
University of Colorado at Boulder - Department of Finance ( email )
Campus Box 419
Boulder, CO 80309
United States
303-492-7821 (Phone)
Roberta Romano (Contact Author)
Yale Law School ( email )
P.O. Box 208215
New Haven, CT 06520-8215
United States
203-432-4965 (Phone)
203-432-4871 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
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