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A Blueprint for Corporate Governance by Fred Kaen

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CHAPTER 8

CORPORATE GOVERNANCE AND MANAGERIAL COMPENSATION

INTRODUCTION

Amajor responsibility of the board of directors is to determine managerial compensation systems. How should managers be compensated? Should pay be tied to performance? How should performance be measured? What evidence is there about the relation between managerial pay and performance? What pay, performance evaluation, and compensation systems are likely to mitigate and not exacerbate conflicts of interests between managers and shareholders?

THE PROBLEM

Consider a New Hampshire ski resort, SkiTrails, that is publicly owned. Ownership is dispersed, and the resort is run by a manager. In this arrangement, the manager is the agent of the owners, who want the manager to maximize ...

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