CEO bonus plans
Subtitle: and how to fix them
By: Kevin J. Murphy, Michael C. Jensen
Contributors: Jensen, Michael C.; Harvard Business School
Series: Working paper / Harvard Business School -- 12-022; Working paper (Harvard Business School) -- 12-022
Publisher: Harvard Business School
Published: 2011
Place of publication: Boston]
Language: eng
Number of pages: 49
Description: Almost all CEO and executive bonus plans have serious design flaws that limit their benefits dramatically. Such poorly designed executive bonus plans destroy value by providing incentives to manipulate the timing of earnings, mislead the board about organizational capabilities, take on excessive (or insufficient) risk, forgo profitable projects, and ignore the cost of capital. We describe the causes of the problems associated with widely prevalent executive bonus plans, and offer our recommendations for fixing them. We focus on choosing the right performance measure, determining how performance thresholds, targets, or benchmarks are set, and defining the pay-performance relation and how the relation changes over time.
Notes: "October 2011" -- Publisher's website.

Includes bibliographical references.