Alex Edmans - Faculty Research in Knowledge@Wharton

Say on Pay: Will U.S. Shareholders Give Executives the Thumbs Up on Compensation?

Wed, 08 Dec 2010 16:38:32 EST

Top corporate executives of U.S.-listed firms will have a new worry next year: Their pay packages will be scrutinized as never before. Starting in January, shareholders by law will be able to vote regularly to approve or disapprove executive pay packages. What will investors consider before casting their votes? Will they put their foot down if they think a pay check is overly generous or simply rubber stamp what corporate boards put before them? And when they do cast these non-binding votes, how much influence will they actually have on pay levels and the metrics against which performance is measured?

Home Is Where the Money Is: A New Incentive Program Aims to Slow Rising Mortgage Defaults

Wed, 29 Sep 2010 15:30:23 EST

As the housing market languishes in the doldrums, an astoundingly high number of homeowners in the U.S. are defaulting on their mortgages. While some simply cannot afford the payments, others own properties that are in "negative equity" -- that is, the value of their homes is less than the amount of the mortgage. As a result, these homeowners have decided to stop paying their mortgages and start fresh. A new incentive program from Wharton finance professor Alex Edmans, however, might give the latter group another choice that could benefit them -- along with lenders and society at large.

Shooting the Messenger: Quarterly Earnings and Short-term Pressure to Perform

Wed, 21 Jul 2010 15:16:28 EST

While most experts agree that a single-minded focus on the short term can cause negative consequences for companies, they also suggest that blaming quarterly earnings reports, and the pressure to meet analysts' targets or company guidance, is like shooting the messenger. Although the system of quarterly earnings might be broken, fixing it is no easy matter and might create even more pressure to produce immediate results.

Why It Pays to Link Executive Compensation with Corporate Debt

Wed, 07 Jul 2010 14:14:17 EST

The recent financial crisis, triggered primarily by bad bets in the financial sector, has added momentum to the idea that executive compensation should be tied more closely to corporate debt rather than equity. Last month, for example, American International Group (AIG) announced that it will link incentive pay to the value of the troubled insurer's bonds. In a new paper, Wharton finance professor Alex Edmans and doctoral student Qi Liu argue that these types of incentives protect bondholders' interests and the value of the firm, particularly when a company's solvency is in question.

Why CEOs May Want You Talking About Takeover Attempts

Wed, 14 Apr 2010 11:36:17 EST

Theory and common sense suggest that the marketplace imposes discipline on corporate managers. If top leadership performs poorly, the stock price will suffer and the company might be at risk of a takeover. But according to new Wharton research, other factors may mask the takeover "trigger" effect, making stock price a poor indicator of how the market views managers' performance. In addition, the research shows why corporate managers often seem willing, even eager, to publically complain that their firms are being eyed as takeover targets.

Crackdown on Executive Pay: Too Much or Not Enough?

Wed, 28 Oct 2009 17:19:29 EST

Last week, the Obama administration's "pay czar," Kenneth Feinberg, announced that the government will impose caps on compensation for the 25 highest-paid executives at seven companies that received "exceptional assistance" through the Troubled Asset Relief Program -- including American International Group (AIG), Bank of America, Citigroup, Chrysler, Chrysler Financial, General Motors and GMAC. Under the new regulations, salaries will be reduced by an average of 90%, and total compensation (including bonuses and stock options) will be lowered by 50%. Knowledge@Wharton spoke with Wharton accounting professor Wayne R. Guay and then with finance professor Alex Edmans about what these changes could mean for Wall Street, company shareholders and taxpayers.

Incentives for the Long Run: An Executive Compensation Plan That Looks Beyond the Next Quarter

Wed, 27 May 2009 17:04:13 EST

Executive compensation packages that provide huge payouts for short-term stock-market gains have been blamed for playing a role in the risky behavior that triggered the continuing financial crisis. In a new research paper, a Wharton professor and several colleagues say they have come up with something better: A compensation structure based on long-term escrow accounts.

Outrage over Outsized Executive Compensation: Who Should Fix It and How?

Wed, 04 Feb 2009 17:07:39 EST

The contrast is jarring. As thousands of Americans lose their jobs, headlines are focused on excessive executive compensation and lavish perks, including multi-million-dollar bonuses, a $1.2 million executive suite renovation (since repaid) and plans to buy a new corporate jet (since scrapped). It's not surprising that the harsh economic climate and resurgent role of government in business has turned a spotlight on compensation. Indeed, rules announced this week by the Obama administration set new limits on executive pay. But overall, what should government do, or not do, to ensure fairness and accountability in the executive suite?

Show Me the Money: Aura of Top M&A Banks Often Obscures Low Returns for Clients

Wed, 29 Oct 2008 13:34:46 EST

In merger-and-acquisition advice, an investment bank's market share does not seem to equate with value delivered to clients, two scholars from Wharton and the Massachusetts Institute of Technology conclude in a research paper. Indeed, the opposite may be true: The more market share an investment bank has, the less value it will deliver to clients.

How Investing in Intangibles -- Like Employee Satisfaction -- Translates into Financial Returns

Wed, 09 Jan 2008 15:30:15 EST

Contrary to management theories developed in the Industrial Age, employee satisfaction is an important ingredient for financial success, according to a new research paper by Wharton finance professor Alex Edmans. His findings also challenge the importance of short-term financial results and may have implications for investors interested in targeting socially responsible companies. The paper is titled, "Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices."

What's Ahead for the Stock Market -- and Quant Funds

Wed, 22 Aug 2007 13:35:36 EST

After weeks of skittishness and fear, investors showed signs on Tuesday of settling down. "Yesterday was one of the dullest days in the market that we've had in a while, and that's good in many ways," says Wharton finance professor Jeremy Siegel. Investors have been reeling from widespread problems in the subprime sector, stocks have fallen, yields on Treasury securities have dropped and some companies are finding it hard to borrow money -- all of which spurred the Federal Reserve last week to announce a cut in interest rates. Meanwhile, the upheaval has shown that quant funds, despite their computer power, aren't immune to mistakes and market downturns. So what can we expect in the weeks ahead?