In 1992, the SEC introduced regulations requiring U. S. firms to disclose to their shareholders information about
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In 1992, the SEC introduced regulations requiring U. S. firms to disclose to their shareholders information about the compensation of the firm’s five highest paid executives. Due to continuing public concern about high executive compensation levels, the SEC introduced further disclosure regulations in 2006 and 2010. These included requirements for a management discussion of its executive compensation policies, improved disclosure of executive stock option awards including the amount charged to expense during the year for such awards (recall that in 1992 stock option awards did not require expensing), golden parachutes, and increased risk disclosures. These regulations are briefly described in Section 10.7. In Canada, the Canadian Securities Administrators introduced Form 51- 102F6, effective December 2008, and amended July 2011. These requirements are substantially similar to current SEC requirements.
Required a. What are the arguments in favour of giving shareholders more information about executive compensation, including its relationship to risk management? b. Many of the disclosure requirements relate to longer- term incentive compensation, such as ESOs and/ or restricted stock. What is the argument in favour of awarding compensation such as ESOs and/ or restricted stock to senior executives? c. What are the arguments against making executive pay too dependent on ESOs? Explain. d. To what extent do you think that these disclosure requirements will improve the working of the managerial labour market? Explain. Include a definition of a well- working managerial labour market in your answer. e. If the managerial labour market is fully efficient ( that is, analogous to an efficient securities market), would manager incentive plans based on risky performance measures such as share price and reported net income be needed? Explain why or why not.
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a If shareholders have information about executive compensation such as amounts and types of compensation they can relate this pay package to share price performance and can thus make informed decisio...View the full answer
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Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company.
Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions.
For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.