Baylor University Roundtable on the Corporate Mission, CEO Pay, and
Improving the Dialogue with Investors

A small group of academics and practitioners discusses four controversies in corporate finance, including questions about value maximization as the corporate goal and the role of earnings guidance in communicating with investors.

Value Maximization, Stakeholder Theory, and the Corporate Objective Function
Michael Jensen

The corporate mission is "enlightened maximization"-that is, aiming to increase the long-run expected value of investors' claims while investing in and enlisting the commitment of all the firm's stakeholders.

The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems
Michael Jensen

To provide sufficient capital for growth, all developed economies must find ways to continuously cut back excess capacity, an unpleasant role for managements that is performed in the U.S. with the help of capital markets and highly leveraged transactions.

Just Say No to Wall Street:  Putting a Stop to the Earnings Game
Joseph Fuller and Michael Jensen

Corporate values can be increased by ending earnings guidance and creating a more strategic dialogue between companies and investors-one that focuses on long-run corporate goals, value drivers, and financial policies, including risk management.

CEO Pay-It's Not How Much You Pay, But How
Michael Jensen and Kevin Murphy

With the sharp decline in the use of equity incentives from the late 1930s until the 1980s, the pay-for-performance of U.S. CEOs at the end of the '70s was virtually indistinguishable from that of rank-and-file workers-a major cause of value destruction during the '70s.

Active Investors, LBOs, and the Privatization of Bankruptcy
Michael Jensen

For companies that don't need equity to grow, private equity provides a superior model of financial management and governance-one that combines significant managerial equity with vigorous oversight by the firm's largest owners.

Venture Capital in Canada:  Lessons for Building (or Restoring) National Wealth 
Reuven Brenner and Gabrielle A. Brenner

Canadian policymakers and regulators, while praised for restraining excessive risk-taking by the country's banks, bear considerable responsibility for the poor performance of Canadian venture capital and the resulting loss of entrepreneurial talent.

How to Tie Equity Compensation to Long-Term Results
Lucian Bebchuk and Jesse Fried

This article discusses how equity-based compensation, the primary component of top executives' pay, can be structured to provide executives with incentives to focus on long-term value creation.

Executive Compensation:  An Overview of Research on Corporate Practices and Proposed Reforms
Michael Faulkender, Dalida Kadyrzhanova, N. Prabhala, and Lemma Senbet

In this policy oriented piece, the authors discuss the key issues in the debate on executive pay and express their support for a number of reform proposals that have been advanced in academic and policy circles.

Promotion Incentives and Corporate Performance:  Is There a Bright Side to "Overpaying" the CEO?
Jayant Kale, Ebru Reis, and Anand Venkateswaran

The authors report their finding that promotion-based "tournament" incentives, as measured by the pay differential between the CEO and VPs, are associated with better corporate operating performance and higher corporate stock returns. 

Are Incentives the Bricks or the Building?
Ron Schmidt

Instead of paying more attention to incentive design, the author suggests devoting more corporate resources to seeking and attracting individuals with low "monitoring costs," thereby creating "character-rich" organizations.