Executive Compensation and Corporate Fraud - 1083 Words

Introduction: The past decade has been witness to some of the worst accounts of corporate fraud ever recorded, with multi-billion dollar companies such as Enron, Tyco, and World-com involved in serious financial scandals. CEOs and senior executives are often the driving force behind such unscrupulous activities by adopting shady accounting practices and other forms of short-termist actions for the purpose of increasing their firm’s stock price and their own personal wealth. The following paper will investigate whether there is a link between executive compensation structures and fraud or misreporting. Through the analysis of four academic articles, I will show that the evidence which links compensation tools tied to stock market based†¦show more content†¦In practice, the use of stock options in the corporate sector has increased to account for nearly two-thirds of total pay for CEOs in median firms, a figure that trumps 1984 estimates, where stock options accounted for only 1% of total pay (Denis et al., 2006). So the question we must ask is when we use stock option based incentives for executives, does the evidence warrant the need for greater controls or regulation? Denis et al. (2006) briefly explores the idea of the need for greater outside monitoring, and discusses how the â€Å"dark side† of stock incentive compensation may require robust corporate governance structures to counter-veil the negative effects. Erickson et al. (2006) points out that regulators and policy-makers are quick to link corporate fraud and stock options. They (Erickson et al. 2006) state that the intent of their research was in part to resolve the question as to whether there exists evidence that stock-based compensation is tied to accounting fraud. Since no evidence is found, the policy implications for greater controls are limited. Burns et al. (2006) study has implications for the level of options and equity in CEO remuneration contracts. Efendi et al. (2007) does not provide any policy recommendations, but do call for further researchShow MoreRelatedExecutive Compensation969 Words   |  4 PagesEXECUTIVE COMPENSATION 1. HOW IS IT DETERMINED? Executive compensation generally consists of a mix of four components: - Annual Base Salary - Annual Incentive or bonus plans tied to short-term performance measures. - Long Term Incentives consisting in a mix of restricted stocks, stocks options and other long-term performance plans tied to shareholder return or financial performance. - Benefits plans. 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In order to show the public that they were doing well, top management kept a separate report to come up with the difference that existed between the actual and expected number that they need to report to the account called corporate unallocated revenue from the actual book (Beresford, Katzenbach, C.B. Rogers, 2003). By doing so, WorldCom improperly recorded a total of $958 million in revenue from 1999 to the first quarter of 2002 (Beresford, Katzenbach, C.B. Rogers, 2003)Read MoreWorldcom Fraud : Worldcom And Worldcom987 Words   |  4 PagesWhile Enron was the complicated fraud, WorldCom fraud was the simplest to commit. WorldCom, now known as MCI and acquired by Verizon Communication since 2006, was founded in 1983 to create a discount long-distance provider. The company grew very rapidly in the 1990s due to several large acquisitions. (Beresford, Katzenbach, C.B. 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