A very slick, new on-line journal has just come out tackling what is probably the biggest regulatory problem of our time: financial regulation. This journal has great stuff from David Evans and Arnold Kling. And the top compensation expert anywhere.
That was my proposed title for this article just published in Forbes, but the editors there, well they have their own mind about things.
Anyway, their Bonus issue is up, and the line-up is great. It includes a colleague, client, collaborator, and competitor (quoted in one of the pieces). Enjoy!
Update: Anyone who says that print media offers the ability to offer more nuanced analysis and discussion of issues hasn’t worked in incentive compensation! My article basically says two things: you have to compete, and incentives matter. Most of the comments basically assume the opposite, which is par for the course on this emotional issue.
I posted new paper, “The Earnings Game,” two weeks ago on SSRN. Actually, this ‘paper’ is an interactive case designed to reinforced corporate governance lessons around disclosure.
It places participants in various roles with certain incentives and constraints, and allows them to interact in a manner consistent with their respective motivations. While this case necessarily simplifies the relationship between corporate management and investment analysts, it evokes both the relevant behaviors and their emotional content in the management and evaluation of companies with respect to their earnings.
So, students get a visceral as well as intellectual understanding of what disclosure means. This has been a popular teaching tool for the last several years in my classes at NYU and USG (in Switzerland).
This paper just made Top Ten downloads in the Management Research Network case series.
UBS is trying some new incentive plan structures. It is adopting most of the elements that our research has shown works for public companies.
One of those elements is a potentially uncapped reward. Incentive compensation has many moving parts, so it might seem counter-intuitive that a capped bonus potential actually undermines accountability to shareholders, but it’s true–both in theory and in empirical research. The article notes that the uncapped bonus aspect of the proposed plan is a sticking point for “shareholder advocacy group” Ethos. The article ends with:
“UBS does not intend to limit the variable part of the remuneration, by capping for example the bonus in terms of base salary or by setting a maximum amount of shares to be awarded under the long term incentive plan,” Ethos said.
“Consequently Ethos has concerns that the new system will not prevent UBS from paying, in the future, remunerations that could be deemed excessive.”
Ethos’s concerns are unfounded. If they understood how all the elements of the plan work together, and see how it actually works with some of our past clients, then they would see how this aspect of the plan is actually critical to preventing excessive remuneration.
Alas, we can attest that very few “shareholder advocates” or institutional shareholders or any other outsiders who have not been apprised of the plans as the board has, can really, fully comprehend them, especially if the plans involve any innovations. Yet these are the people to whom we want to give a “Say on Pay.”
In a small step toward legitimacy, my Enron Scandal paper passed 1000 downloads today. I don’t check these things every day. (Honest.) I happened to be looking up one of my old papers and saw an even 1000 on the screen beneath my top-ranked paper. I know it’s podunk stuff in the academic world (real academics have a dozen papers with over 1000 downloads, many in the several thousands), but I’m excited by the notion that my creation has attracted 1000 viewers. I hope they liked it. Kurt Eichenwald, author of bestselling Enron tome Conspiracy of Fools liked it. Of course, his book was a major source for my document.
Many people believe that corporate social responsibility is part of good governance. I guess that’s why Forbes asked me to write this article on the subject.
Forbes published this article about female CEO compensation. Markets often get a rap for being impersonal (it’s just about the money) but impersonal interactions, by definition, overcome discrimination. Women still suffer from discrimination in the work place, but relentless demand for better talent is arguably driving up their numbers in the C-suite.
My favorite part of the article, however, is their quote from “Mike Hodak.” No, my brother doesn’t even work with me. I suppose it’s natural to blame one’s parents for such things. After all, they felt compelled to name all their sons starting with “M.” Mike, Marc…an understandable confusion in a phone interview. Of course, the author of this story couldn’t have known that Mike exists, except that he thought it was me. Alas, I don’t mind sharing the limelight with my family.
I was explaining to my Russian audience why their oligarchs deserved their billions, when someone decided to launch a pointed comment…
I hear they found something that looked like a controller in the bag of an attendee representing the AFL-CIO. Or maybe one of those Towers Perrin hecklers.
That was the working title for this article that I just published in Forbes. Another possible title was “Defending Outrageous CEO Pay.” Anyway, it appears in their special report on Competition. Dissenting mail (not quite hate mail) has already started rolling in.
Right about now, high school students across the country are getting their verdicts on where they were admitted, or not. For the hundreds of thousands who were applying to selective institutions, this is the last stage of a decision making process that began last summer. This process included decisions about which schools to apply to, early versus regular applications, financial aid considerations, etc.
As one can imagine, any tool that can bring a little sense of control to this grind is a welcome help. My older guy, Max, came up with just such a tool. College Admissions collects information from users (i.e., a college applicants), and returns some user-specific information to help them decide where to apply and their odds of getting in. Max used a proto-type of this system to get into Duke. As with most things in this Internet Age of network effects, the more people who use this tool, the better it works, and the more it spreads. Thousands of students have already used College Admissions in applying for the upcoming freshman year, offering a lot of positive feedback.
Those of us with high school juniors know that the process is just beginning for a whole new round of kids. If you know kids ready to start down this road, especially they are on Facebook, they will probably encounter this application. But feel free to send this link to them, anyway: http://app2.collegeproject.net/. That way, when you wish them good luck, and they will at least know what their odds are!