 | This article appears to be a dictionary definition .(May 2023) |
In corporate governance, the outrage constraint is an upper limit on executive pay. [1] [2] [3] [4]
| | This article appears to be a dictionary definition .(May 2023) |
In corporate governance, the outrage constraint is an upper limit on executive pay. [1] [2] [3] [4]
A board of directors is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit organization, or a government agency.
A chief executive officer (CEO), also known as a central executive officer, chief administrative officer (CAO) or ChiefAdministrator (CA) or just chief executive (CE), is one of a number of corporate executives charged with the management of an organization – especially an independent legal entity such as a company or nonprofit institution. CEOs find roles in a range of organizations, including public and private corporations, non-profit organizations and even some government organizations (notably state-owned enterprises). The CEO of a corporation or company typically reports to the board of directors and is charged with maximizing the value of the business, which may include maximizing the share price, market share, revenues or another element. In the non-profit and government sector, CEOs typically aim at achieving outcomes related to the organization's mission, usually provided by legislation. CEOs are also frequently assigned the role of main manager of the organization and the highest-ranking officer in the C-suite.
Corporate governance is defined, described or delineated in diverse ways, depending on the writer's purpose. Writers focused on a disciplinary interest or context often adopt narrow definitions that appear purpose-specific. Writers concerned with regulatory policy in relation to corporate governance practices often use broader structural descriptions. A broad (meta) definition that encompasses many adopted definitions is "Corporate governance describes the processes, structures, and mechanisms that influence the control and direction of corporations."
Employee stock options (ESO) is a label that refers to compensation contracts between an employer and an employee that carries some characteristics of financial options.
A golden parachute is an agreement between a company and an employee specifying that the employee will receive certain significant benefits if employment is terminated. These may include severance pay, cash bonuses, stock options, or other benefits. Most definitions specify the employment termination is as a result of a merger or takeover, also known as "change-in-control benefits", but more recently the term has been used to describe perceived excessive CEO severance packages unrelated to change in ownership.
An agency cost is an economic concept that refers to the costs associated with the relationship between a "principal", and an "agent". The agent is given powers to make decisions on behalf of the principal. However, the two parties may have different incentives and the agent generally has more information. The principal cannot directly ensure that its agent is always acting in its best interests. This potential divergence in interests is what gives rise to agency costs.
An independent director is a member of a board of directors who does not have a material or pecuniary relationship with company or related persons, except sitting fees. In the United States, independent outsiders make up 66% of all boards and 72% of S&P 500 company boards, according to The Wall Street Journal.
In accounting and contractual law, "golden hello" is a term used for several different arrangements:
Lucian Arye Bebchuk is a professor at Harvard Law School focusing on economics and finance.
Say on pay is a term used for a role in corporate law whereby a firm's shareholders have the right to vote on the remuneration of executives. In the United States this provision was ushered in when the Dodd Frank Act Wall Street Reform and Consumer Protection Act was passed in 2010. While Say on pay is a non-binding, advisory vote, failure reflects shareholder dissatisfaction with executive pay or company performance.
The UK Corporate Governance code, formerly known as the Combined Code is a part of UK company law with a set of principles of good corporate governance aimed at companies listed on the London Stock Exchange. It is overseen by the Financial Reporting Council and its importance derives from the Financial Conduct Authority's Listing Rules. The Listing Rules themselves are given statutory authority under the Financial Services and Markets Act 2000 and require that public listed companies disclose how they have complied with the code, and explain where they have not applied the code – in what the code refers to as 'comply or explain'. Private companies are also encouraged to conform; however there is no requirement for disclosure of compliance in private company accounts. The Code adopts a principles-based approach in the sense that it provides general guidelines of best practice. This contrasts with a rules-based approach which rigidly defines exact provisions that must be adhered to. In 2017, it was announced that the Financial Reporting Council would amend the Code to require companies to "comply or explain" with a requirement to have elected employee representatives on company boards.
Staggered elections are elections where only some of the places in an elected body are up for election at the same time. For example, United States senators have a six-year term, but they are not all elected at the same time. Rather, elections are held every two years for one-third of Senate seats.
Executive compensation is composed of both the financial compensation and other non-financial benefits received by an executive from their employing firm in return for their service. It is typically a mixture of fixed salary, variable performance-based bonuses and benefits and other perquisites all ideally configured to take into account government regulations, tax law, the desires of the organization and the executive.
Kenneth D. Lewis is the former CEO, president, and chairman of Bank of America, the second largest bank in the United States and twelfth largest by total asset in the world. While CEO of Bank of America, Lewis was noted for purchasing Countrywide Financial and Merrill Lynch resulting in large losses for the bank and necessitating financial assistance from the federal government. On September 30, 2009, Bank of America confirmed that Lewis would be retiring by the end of the year. Lewis was replaced by Brian Moynihan as president and CEO and Walter Massey as chairman of the board.
An electric utility is a company in the electric power industry that engages in electricity generation and distribution of electricity for sale generally in a regulated market. The electrical utility industry is a major provider of energy in most countries.
Kevin James Murphy is a professor at the University of Southern California. Since 2006, Murphy has held the Kenneth L. Trefftzs Chair in Finance at the USC Marshall School of Business. He is also a Professor of Law at the USC Gould School of Law and Professor of Economics at USC's College of Letters, Arts & Science.
In the United State, the compensation of company executives is distinguished by the forms it takes and its dramatic rise over the past three decades. Within the last 30 years, executive compensation or pay has risen dramatically beyond what can be explained by changes in firm size, performance, and industry classification. This has received a wide range of criticism leveled against it.
Pay Without Performance: The Unfulfilled Promise of Executive Compensation is a 2004 book by professors of law Lucian Bebchuk and Jesse Fried on the power of corporate executives in the United States to influence their own pay and of the structural defects in corporate governance that grant them this power.
Employer compensation in the United States refers to the cash compensation and benefits that an employee receives in exchange for the service they perform for their employer. Approximately 93% of the working population in the United States are employees earning a salary or wage.
Robert J. Jackson Jr. is an American lawyer and academic. He currently serves as a professor of law at New York University School of Law, where he is on public service leave. Jackson's research emphasizes the empirical study of executive compensation and corporate governance matters. On September 1, 2017, the White House announced that President Donald Trump had nominated Jackson to fill the open Democratic seat on the U.S. Securities and Exchange Commission (SEC). Jackson was unanimously approved by the Senate Banking Committee for the seat, and thereafter unanimously confirmed by the United States Senate on December 21, 2017.
In practice, modern C.E.O.'s set their own compensation, limited only by the outrage constraint -- outrage not on the part of the board, whose members depend on the C.E.O.'s good will for many of their perks, but on the part of outside groups that can make trouble.
When the potential outrage costs are large enough, they will deter the adoption of arrangements that managers would otherwise favor. We shall refer to arrangements that are deterred in this way as ones that violate the 'outrage constraint.'
The managerial power thesis of Professors Lucian Bebchuk and Jesse Fried argues that outrage is perhaps the only effective constraint on executive remuneration, where the board of directors is effectively dominated by a sufficiently powerful CEO or senior management group.
{{cite journal}}: Cite journal requires |journal= (help)Bebchuk and Fried (2004) provide a substantial amount of evidence that the principal‐agent setting cannot explain the salient facts about CEO pay. They propose an alternative model in which CEOs have control over boards of directors and are mainly restricted by an "outrage constraint" where shareholders retaliate if they perceive executive compensation to be excessive.
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