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Incentive based compensation
Introduction:
Incentive based compensation is here
defined as
the systems that regulate the pecuniary compensation of executives or investment
managers.
These systems
are of major importance in corporate governance because their design determines the
incentives of the managers and thereby the economic efficiency of the
businesses they manage.
Classic references on
incentive based compensation systems are Hart and Holmström [1987, part 1] and Murphy [1999].
Contents
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Table -
Hypotheses:
Effects of incentive based compensation systems on corporate performance and other other
kinds of institutions of relevance for corporate governance.
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Theoretical model
- The agency model:
The principal agency theory offers a rigorous
explanation of the classic tradeoff between risk and incentives.
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White paper -
Performance fees: This white paper on performance fees offers a high level analysis of how
performance fees for investment managers function and how to structure them so that they work in the
best interest of the investors who pays them rather than against their interest.
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Empirical model
- Executive compensation: Determinants of executive compensation in listed US firms - Definitions and justifications.
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Exhibition
- Risk defined:
The concepts of risk aversion, risk neutrality and risk loving.
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Table - International
corporate governance: Tentative
characterizations of legal and empirical state of large firm incentive based
compensation system in various countries as of 1980-95: 1) Developing countries.
2) Germany. 3) Japan. 4) Anglo-American countries. 5) Denmark.
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