Abstract

https://ssrn.com/abstract=1420991
 
 

References (33)



 
 

Citations (2)



 


 



The 2007-2009 Financial Crisis and Executive Compensation: An Analysis and a Proposal for a Novel Structure


Alon Raviv


Bar-Ilan University - Graduate School of Business Administration

Yoram Landskroner


Hebrew University of Jerusalem - Department of Finance and Banking; New York University (NYU) - Leonard N. Stern School of Business

June 16, 2009


Abstract:     
During the 2007-2009 crises financial institutions have come under increasing pressure from regulators, politicians and shareholders to change their compensation practices in order to remove the incentive for short term excessive risk taking.

In this paper we analyze how commonly used executive compensation plans can lead to two socially undesirable outcomes: excessive risk taking at one extreme and complete freeze of new lending on the other. We propose adding a new component to the executive compensation which is paid only if the value of the firm will be located in some predetermined range. This components will push the executive towards the first best solution in which an intermediate (internal solution) level of assets risk will be optimal because of the convex relationship between assets risk and compensation value.

Number of Pages in PDF File: 31

Keywords: compensation practices, executive compensation, excessive risk taking, executive stock options, financial crisis

JEL Classification: G12, G13, G21, G28, G38, E58


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Date posted: June 17, 2009 ; Last revised: October 7, 2009

Suggested Citation

Raviv, Alon and Landskroner, Yoram, The 2007-2009 Financial Crisis and Executive Compensation: An Analysis and a Proposal for a Novel Structure (June 16, 2009). Available at SSRN: https://ssrn.com/abstract=1420991 or http://dx.doi.org/10.2139/ssrn.1420991

Contact Information

Alon Raviv (Contact Author)
Bar-Ilan University - Graduate School of Business Administration ( email )
The Graduate School of Business Administration
Ana and Max Web st
Ramat Gan
Israel
Yoram Landskroner
Hebrew University of Jerusalem - Department of Finance and Banking ( email )
Mount Scopus
Jerusalem, 91905
Israel
New York University (NYU) - Leonard N. Stern School of Business ( email )
44 West 4th Street
New York, NY NY 10012
United States

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