CEO Incentives and Shareholder Expectations

The assignment discusses the challenges faced by British companies in increasing CEO pay to compete with US firms. It examines the impact of incentivizing CEOs on company performance and shareholder returns, highlighting the delicate balance between board governance and management succession. The reference list includes academic studies on CEO incentive compensation and earnings management.

Running head: FINANCIAL ACCOUNTING THEORY
Financial Accounting Theory
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1FINANCIAL ACCOUNTING THEORY
Summary:
The international market for CEO is facing competition and the growing debate
regarding the package of CEO continuous to make headlines. Despite the shareholders
disgruntle British companies must increase the pay of CEO to compete with US (Cooper,
Gulen and Rau 2016). However, companies have sought to address the issue by increasing
the pay performance but it is an arduous task with shareholders expressing discontent against
CEO increase in performance bonus.
Revolts over pay may be rare but provides alarming indications of weak board and
uncertain management succession. This may cause declining share prices with reduced
investor’s returns. The boards that offers incentives packages to CEO faces the tricky path of
long-term performance with uncertain organizations fortune (Almadi and Lazic 2016). The
threat of state intervention is inescapable and chairperson facing shareholders disgruntlement
may defend incentives with benchmarking and competition.
With increasing demand for CEOs and high executives in the competitive market,
incentives could help in matching with US. Though US have increased incentives by 9% in
2013 to Britain’s 1% rise, incentivising the CEOs pay may enable British firms to keep pace
with US. Regardless of investors expectation from companies a rising tide of compensation
may help in keeping a valuable CEO within the firm.

2FINANCIAL ACCOUNTING THEORY
Reference List:
Almadi, M. and Lazic, P., 2016. CEO incentive compensation and earnings management: The
implications of institutions and governance systems. Management Decision, 54(10), pp.2447-
2461.
Cooper, M., Gulen, H. and Rau, P.R., 2016. Performance for pay? The relation between CEO
incentive compensation and future stock price performance.