Infectious Greed: Restoring Confidence in Americas Companies - page 32


U.S. executive pay is the highest in world. Part of this compensation comes from basic cash salaries and bonuses. While the bonus system can be abused, it is the incentive programs that create real problems. The main security used in the incentive program is the stock option. Stocks and options are used to try to align manager goals with shareholder goals. This is necessary because while the stockholders own the firm, the managers control it. This separation of ownership and control creates opportunities for managers to act in their own interest. Managers, academics , and boards of directors have argued that stock and option incentives reduce this conflict. We demonstrate that stock options also create other incentives that are not aligned with stockholder interests. Indeed, stock options may not even be an effective means of inducing better company performance.


  1. Thomas McCarroll, "The Shareholders Strike Back: Executive Pay," Time , May 5, 1992, pp. 46 “49.

  1. Much of the compensation description in this section is summarized from Kevin Murphy, "Executive Compensation," in Handbook of Labor Economics , vol. 3B, Orley Ashenfelter and David Card, eds. (Amsterdam: North-Holland, 1999).

  1. John Byrne, "Restoring Trust in Corporate America," BusinessWeek , June 24, 2002, pp. 31 “35.

  1. John Byrne, "No Excuses for Enron's Board," BusinessWeek , July 29, 2002, pp. 50 “51.

  1. "Curing What Ails the Market," editorial, San Francisco Chronicle , July 21, 2002, p. E4.

  1. Hamid Mehran, "Executive Compensation Structure, Ownership, and Firm Performance," Journal of Financial Economics 38 (1995): 163 “184; Charles Himmelberg, Glenn Hubbard, and Darius Palia, "Understanding the Determinants of Managerial Ownership and the Link Between Ownership and Performance," Journal of Financial Economics 53 (1999): 353 “384.

  1. Kris Maher, "The Price of Doing Poorly," Wall Street Journal , April 12, 2001, p. R7.

  1. "Apple Gives Jobs New Set of Stock Options," Houston Chronicle , March 22, 2002, p. 10.

  1. Carol Emert, "Ellison Cashes In Stocks for $895 Million," San Francisco Chronicle , February 14, 2001, p. C1.

  1. "2000 Worldwide Total Remuneration" and "Worldwide Total Remuneration 2001 “2002," studies by Towers Perrin, www. towers .com/towers_publications/ publications .

  1. These are split-adjusted stock-price figures.

  1. Tim Smart, "An Eye-Popping Year for Executive Pay," Washington Post , March 22, 1998, p. H1.

  1. Richard Verrier, "Eisner's Paycheck Humbled in 2001," Los Angeles Times , January 5, 2002, p. C1.

  1. Joann Lublin, "As CEOs' Reported Salaries and Bonuses Get Pinched, Many Chiefs are Finding Hidden Ways to Increase Their Compensation," Wall Street Journal , April 11, 2002, p. B7.

  1. Joann Lublin, "How CEOs Retire in Style," Wall Street Journal , September 13, 2002, p. B1.

  1. Ellen Schultz, "Big Send-Off: As Firms Pare Pensions for Most, They Boost Those for Executives," Wall Street Journal , June 20, 2001, p. A1.

  1. Matt Murray, "SEC Investigates GE's Retirement Deal with Jack Welch," Wall Street Journal , September 17, 2002, p. B1; Deepa Babington, "Welch Renounces Generous Retirement Perks," Reuters , September 16, 2002, 5:15 p.m.

  1. Gary Strauss, "Many Execs Pocket Perks Aplenty," USA Today , May 1, 2001, p. B1.