Remuneration Programs: A Principal Agent Theory perspective of CEO Remuneration Programs

In media these days, remuneration packages to CEO’s are often talked about. Media are often concentrating on the huge sums paid out instead of why the businesses use the programs. The objective of this dissertation is to look at if the conflict of interest presented by the Principal Agent Theory is impacted by a CEO remuneration program. To succeed in the objective, an inductive method has been utilized. Questionnaires have been send out by e-mail and phone interviews have been carried out with 2 sample groups, one with remuneration programs, and one that do not use remuneration programs.The primary theoretical framework utilized is Principal Agent Theory

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1 Introduction
1.1 Background
1.2 Problem Discussion
1.3 Purpose
1.4 Delimitation
1.5 Definitions
1.6 Disposition
2 Method
2.1 Philosophy of Science
2.2 Qualitative vs. Quantitative
2.3 Collection of Primary and Secondary Data
2.4 Inductive vs. Deductive
2.5 Sample Selection
2.5.1 Companies with a Remuneration Plan
2.5.2 Companies without a Remuneration Plan
2.6 Questionnaires and Interviews
2.6.1 Questionnaires
2.6.2 Phone-Interviews
2.7 Measurements of Management Performance
2.8 Validity and Reliability
2.9 Analysis Model
3 Theoretical Framework
3.1 Principal Agent Theory
3.1.1 Monitoring Expenditures
3.1.2 Bonding Expenditures
3.1.3 Residual Loss
3.1.4 Free Cash Flow
3.2 The Fisher Separation Theorem
3.3 Motivation Theory
3.3.1 Maslow’s Hierarchy of Needs
3.3.2 Herzberg Motivation-Hygiene Theory
3.4 Compensation Policy
3.4.1 Set Wage
3.4.2 Variable Wage
3.5 Stewardship
3.6 Measurements of Management Performance
3.6.1 ROE
3.7 Summary of the Theories used
4 Empirical Findings
4.1 Companies with a Remuneration Plan
4.1.1 OMX
4.1.2 Swedish Match
4.1.3 Ericsson
4.2 Companies without a Remuneration Plan
4.2.1 Holmen
4.2.2 SHB
5 Analysis
5.1 Companies with a Remuneration Plan
5.1.1 Principal Agent Theory
5.1.2 Compensation Policy
5.1.3 Measurement of Management Performance
5.1.4 Motivation Theory
5.1.5 Comparing the Companies with a Remuneration Plan 47
5.2 Companies without a Remuneration Plan
5.2.1 Principal Agent Theory vs. Stewardship
5.2.2 Measurement of Management Performance
5.2.3 Motivation Theory
5.2.4 Comparing the Companies without a Remuneration Plan 50
5.3 Comparing the Two Sample Groups
6 Conclusion……

The Ethics of CEO Compensation

Source: Jönköping University

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