Recent studies show that performance based remuneration and stock based remunration may not be performing as envisaged. In one
study they found that
it is very difficult to devise performance-based compensation contracts that reward portfolio managers who generate excess returns while screening out managers who cannot generate such returns.
whilst in another
study they found that stock based remuneration did not necessarily equate to increased performance
stock-based compensation not only induces managers to exert costly effort, but also induces them to conceal bad news about future growth options and to choose suboptimal investment policies to support the pretense. This leads to a severe overvaluation and a subsequent crash in the stock price.
Maybe it just
seemed like a good idea.
