Footnotes 1 See “Fear and Loathing in Executive Pay,” Economic Commentary , Federal Reserve Bank of Cleveland, by Joseph G. Haubrich, November 1, 1994. Haubrich states that “because corporate performance depends on many factors outside the control of the CEO (for instance, the general condition of the economy, oil shocks, wars, or new regulations), linking pay too closely with performance subjects CEOs to excessive risk.” Furthermore, Stephen O'Byrne suggests that one of the key objectives to consider when developing a compensations strategy is to provide sufficient compensation to retain executives, particularly during periods of poor performance that were influenced by market and industry forces. See Stephen F. O'Byrne , “ Total Compensation Strategy ,” Journal of Applied Corporate Finance , 8 ( 1995 ), 77 – 86 . The most compelling counterargument is that executives should not be shielded from external forces, because it is their responsibility to direct the firm's response to such external challenges. (For a statement of this argument, see George P. Baker , “ Pay‐for‐Performance for Middle Managers: Causes and Consequences ,” Journal of Applied Corporate Finance , 3 ( 1990 ), 50 – 61 .) In response to this argument, it is important
Journal of Applied Corporate Finance – Wiley
Published: Mar 1, 1996
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