Wayne Guay - Faculty Research in Knowledge@Wharton

Obama's Regulatory Plan: Too Hot, Too Cold, or Just Right?

Wed, 24 Jun 2009 16:27:19 EST

Five months into his administration, President Barack Obama on June 17 unveiled his complex, sweeping financial proposals to create a "21^st century regulatory framework" for the U.S. The proposed regulations give the Federal Reserve more power to watch over Wall Street and also create a new agency to curb abuses by mortgage and credit card lenders. Wharton professors and other experts say that while the new framework does not hamper financial innovation, it is also "too timid" and fails to address serious problems.

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?

Not a Dirty Word: How Companies Use Debt to Improve Their Bottom Line

Wed, 04 Feb 2009 17:07:39 EST

To many laymen, debt is a dirty word, and plenty of companies have indeed been dragged under by shouldering too much. But academics and other experts have long believed the opposite is true: Many companies take on too little debt, failing to fully exploit benefits like the tax deductions on interest payments. Now, new research by three Wharton faculty members -- Wayne R. Guay, Jennifer Blouin and John E. Core -- shows that companies are not, in fact, foolishly leaving tax deductions on the table.

CEOs and Market Woes: Is Poor Corporate Governance to Blame?

Wed, 10 Dec 2008 17:25:28 EST

Many shareholder advocates see the financial collapse and resulting economic woes as stunning proof of their long-held claim that too often the wrong people are in charge of top corporations -- and that attacking this problem demands an overhaul in corporate-governance regulations. But not everyone sees governance as the culprit, and some warn that a kneejerk attack on established corporate practices could backfire.

The Art and Science of Measuring CEO Performance

Wed, 22 Aug 2007 13:17:32 EST

The long-term performance of a company's stock may be the ultimate test of a CEO's talents. But that's not the only measurement used by boards of directors to gauge how well the boss is doing. Experts at Wharton and elsewhere say that companies use many different metrics -- all of which can be fine-tuned to fit a company's circumstances.

The Impact of Good Governance on International Investing: The 'Home Bias' Effect and Other Issues

Wed, 25 Jul 2007 14:40:29 EST

Following accounting and governance scandals at Enron and other U.S. companies, policymakers in the United States and elsewhere responded by establishing new corporate governance rules, including the Sarbanes-Oxley Act. Now, after complaints from the business community that regulations are hurting profits, some countries are taking a second look at post-Enron reforms. But according to research presented during a recent conference on international corporate governance -- sponsored by the Weiss Center for International Financial Research at Wharton -- countries should think twice about loosening governance regulations.

Current Controversies in Executive Compensation: 'Issues of Justice and Fairness'

Wed, 02 May 2007 09:59:26 EST

Although mammoth executive compensation packages at hedge funds -- hundreds of millions of dollars a year for some managers, with a select few topping $1 billion -- have recently been disclosed in the business press, public outrage over soaring CEO pay has been growing for years. Do executive compensation figures reflect an efficient market or a failed one? Are pay levels adequately disclosed? Should shareholders have more say? And if top executives are overpaid, what's to be done about it? Executive compensation was the subject of a panel at the 2007 Wharton Economic Summit.

Will the SEC Embrace a Softer Sarbanes-Oxley?

Wed, 18 Apr 2007 16:25:13 EST

When the Sarbanes-Oxley (SOX) Act was signed into law in 2002, its goal was to protect investors through increased disclosure and tougher internal controls in the wake of accounting frauds at Enron, WorldCom and other U.S. companies. But on April 4, 2007, the Securities and Exchange Commission announced it will revisit some of SOX's rules. The primary focus will be the financial costs of Section 404, which requires auditors of most publicly listed companies to verify the effectiveness of internal procedures for financial reporting. Knowledge@Wharton asked accounting experts for their opinions on possible SOX revisions.

Short-Circuited: Cutting Jobs as Corporate Strategy

Wed, 04 Apr 2007 15:37:12 EST

When Circuit City announced last week that it was laying off 3,400 workers so it could rehire new ones at lower salaries, it raised the question of just what strategic benefits the company -- or any company -- expects to achieve through employee downsizing. Clearly these benefits depend on the underlying strength of the organization and the specific reasons behind the cost-cutting, but most experts agree that unless layoffs are part of a well-planned strategy, the move could cause as many problems as it was intended to cure.

Home Unimprovement: Was Nardelli's Tenure at Home Depot a Blueprint for Failure?

Wed, 10 Jan 2007 15:46:57 EST

After years of a declining stock price, Home Depot announced the resignation of CEO Robert Nardelli on January 3. Wharton faculty members and other experts say Nardelli, a talented former executive at General Electric who came within a hair's breadth of replacing Jack Welch as head of the giant conglomerate, brought the wrong toolbox to the job after he was recruited for Home Depot's top spot in December 2000. With strategic missteps, an outsized compensation contract and a knack for alienating employees and shareholders, Nardelli turned out to be a star-crossed leader.

What's in Your Future(s)? The Merger of the Chicago Exchanges

Wed, 01 Nov 2006 16:20:23 EST

In mid-October, the Chicago Board of Trade agreed to be purchased by the Chicago Mercantile Exchange for about $8 billion, topping a wave of exchange mergers in the U.S. and Europe. Two factors drove the deal: the enormous growth in the use of futures, options and other derivatives to hedge risks and speculate, and the need for economies of scale to compete with exchanges that have grown through mergers. Wharton professors analyze the deal.

Executive Compensation: Over the Top or On Track?

Wed, 25 Oct 2006 16:12:33 EST

A recent issue of the Wall Street Journal had two front page stories, one on executive compensation and the other on backdating of stock options. The headline for the first was "Behind Soaring Executive Pay, Decades of Failed Restraints," the implication being that executive compensation is out of control and seems to resist all attempts to rein it in. Wharton accounting professor Wayne Guay talks with Knowledge@Wharton about his views on executive compensation, including the role of stock options in rewarding top managers.

CEO Pay: A Window into Corporate Governance

Wed, 17 May 2006 15:28:37 EST

Once again, proxy season has revealed some eye-popping numbers in executive compensation packages, generating heat from shareholders, labor organizations and some analysts who contend that the links between CEO pay and performance are frayed. Other experts, however, suggest that most executives do earn their pay, without indulging in mega-option packages or in salaries that keep increasing even as share value declines. At the same time, these experts also suggest ways to improve compensation packages to more closely align them with shareholder interests.

What Happens When the Press Blasts Your CEO for Excess Compensation? Apparently Not Much

Wed, 22 Mar 2006 15:54:43 EST

Springtime, in addition to bringing back flowers and birds, also brings forth many companies' proxy statements, including information on CEO compensation. It's a signal for the business press to get to work reporting the details of what appear to be the highest executive pay packages. Wharton accounting professors Wayne Guay and John Core, and Stanford accounting professor David Larcker, also study executive compensation. What they conclude from their most recent research is that the most relevant information doesn't necessarily make headlines. They also find that in general, the media's focus on excessive compensation does not substantively change corporate behavior with regards to pay packages.

Sirius Satellite Radio and Howard Stern Go Ear to Ear with XM

Wed, 22 Feb 2006 16:56:24 EST

Since announcing on October 6, 2004, that it had signed Howard Stern to a five-year deal, Sirius Satellite Radio has added approximately 2.7 million subscribers and become a household name in the satellite radio world. The tab: Close to $700 million. Is Stern worth it? Can the popular and raunchy talk show host catapult Sirius ahead of rival XM Satellite Radio, or are there other issues to consider, such as the threat of new technologies, the need to provide good content, and the continuing popularity of conventional radio? Wharton faculty and others debate the different strategies of Sirius and XM and the challenges that both face.

SEC's Spotlight on Executive Pay: Will It Make a Difference?

Wed, 08 Feb 2006 16:48:07 EST

Compensation for American CEOs has soared over the past decade, far exceeding inflation and wage gains of ordinary workers -- and leading critics to charge that self-serving insiders have tilted the playing field at shareholders' expense. In response, the Securities and Exchange Commission on January 17 took the first step toward adopting rules to better show shareholders how much their top executives and directors are paid. Will that drive executive pay down? Probably not, say several Wharton professors, arguing that executive pay is not necessarily as excessive as the most extreme cases suggest. Still, they agree that more complete disclosure would improve the system. As one expert puts it: "When people are forced to undress in public, they pay attention to their figures."

A Bumpy Road for Delphi, GM and U.S. Auto Workers

Mon, 21 Nov 2005 14:54:45 EST

On the heels of an announcement that Delphi, the nation's largest auto parts manufacturer, is filing for Chapter 11 bankruptcy, GM announced on October 17 that it had reached a tentative agreement with the United Auto Workers to cut the healthcare benefits of unionized retirees. These events and others that followed may forever alter the relationship between America's Big Three carmakers and the UAW, and they underscore the degree to which globalization is exerting downward pressure on the wages and benefits paid to U.S. workers. Meanwhile, experts at Wharton and elsewhere say the road ahead could get quite a bit bumpier for American auto industry employees and retirees.

Wishing Upon a Star: Hiring a CEO from Inside the Company Vs. Going Outside

Wed, 06 Apr 2005 17:18:11 EST

When Robert A. Iger was promoted from president to CEO of the Walt Disney Company on March 13, the decision raised a few eyebrows in the corporate world. It's highly unusual, succession experts say, for a company to select a number-two person to succeed the number-one executive when the company's shareholders are unhappy and the former chief was all but forced from office. Experts at Wharton and elsewhere discuss the merits of hiring an outsider CEO vs. an insider, and agree that, in Iger's case, success will hinge on his ability to follow through on his own vision -- in short, his ability to behave like an outsider.

Expensing Stock Options: Can FASB Prevail?

Wed, 02 Jun 2004 14:35:46 EST

When the Financial Accounting Standards Board (FASB) recently announced it may require companies to recognize the value of stock option-based compensation by expensing the value on the income statement, it appeared to be ready to resolve a contentious issue. But the proposal has generated a war of words, pitting heavyweights like Alan Greenspan and Warren Buffett – who favor the expense model – against powerful opponents like SEC Commissioner Paul Atkins and Louisiana Rep. Richard Baker, chairman of the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. The last FASB effort to require an options-expense treatment, back in 1994, foundered in the face of political and industry opposition. However, according to Wharton faculty and others, FASB should be able to stand up to the pressure this time around.

How Employee Stock Options Can Influence the Value of Ordinary Shares

Wed, 17 Dec 2003 14:49:23 EST

Tallying corporate profits has never been easy, but in the past few years it’s become even harder as the debate continues over how to count employee stock options. Most of the discussion is over whether options should be counted as an expense. But also important, says Wharton accounting professor Wayne R. Guay, is what effect options have on the number of stock shares a company has in circulation. The answer can make a big difference when a company computes its earnings per share, and when investors calculate the price-to-earnings ratio. Guay and colleagues John E. Core and S.P. Kothari examine the issue in a paper entitled, “The Economic Dilution of Employee Stock Options: Diluted EPS for Valuation and Financial Reporting.”

Stock Options: The End of the Affair?

Wed, 30 Jul 2003 00:00:00 EST

It was front-page news when Microsoft announced early in July that it was shutting down its options program and planning instead to award employees shares of stock. To many corporations, especially technology firms, the move smacked of heresy. Options, they say, are the best way to motivate employees and a low-cost way to lure top talent. Critics, however, believe options fueled the corporate scandals of the past few years and argue that they actually undermine corporate performance. While neither side seems to be backing off, observers suggest that widely-expected changes in accounting rules may be what finally decides the issue.

A �Perfect Storm� of Circumstances Batters Corporate Pension Plans

Wed, 12 Feb 2003 00:00:00 EST

In 1985, the Financial Accounting Standards Board (FASB) looked at defined-benefit pension accounting issues and noted: �Measuring cost and reporting liabilities resulting from defined benefit pension plans have been sources of accounting controversy for many years.� Now, nearly two decades later, they�re still controversial as companies like General Motors Corp., IBM and others rack up billions of dollars in under-funded defined benefit pension plan liabilities. Some Wharton faculty and other experts are asking whether FASB rules as well as the Internal Revenue Code itself may have played a significant part in the strife.

The Changing Use of Derivatives: More Hedging, Less Speculation

Wed, 12 Feb 2003 00:00:00 EST

During the early and mid 1990s, companies � and at least one county � lost millions on derivatives speculations, leading to a rash of bad press and concerns over future losses. But today, derivatives rarely make the news. It�s not that they are in disfavor, says Wharton accounting professor Wayne Guay; it�s that they are used differently in a market that has matured. In a new research paper titled, �How Much Do Firms Hedge with Derivatives?� Guay looks at the risks and functions of different types of derivatives.

Are Stock Options In Your Future?

Wed, 29 Jan 2003 00:00:00 EST

Given the recent turmoil surrounding stock options, employers and employees alike may be looking more skeptically at this once-popular form of compensation. Among the issues to be considered: How effective are stock options in aligning the interests of managers with the interests of shareholders? Do broad-based option programs improve company performance? And should companies be required to include stock option compensation as an expense on their income statements?