Posts Tagged ‘Hambrick’
Friday, February 26th, 2010
Over the past year, we have discussed everything from the housing industry to Starbucks coffee, thanks to insights from our expert faculty at Smeal. Thank you for your support and readership. We look forward to the year ahead and hope we continue facilitating discussion and producing content of interest to you.
Below is a recap of some of our most viewed posts, addressing several key issues that made the past year a challenging one for business.
Several car companies took a hard hit as the economy tanked and stock prices dropped, forcing them to close plants, layoff workers, and turn to the government for support. In early June, President Obama announced that General Motors filed for bankruptcy and gave Washington a 60 percent stake in the company. Smeal’s Terrence Guay provided a detailed analysis of GM’s history, highlighting the many places they went wrong, in his post, “What Happened to GM?”
The housing industry is slowly on its way to recovery after a volatile year. An unstable mortgage market and a suffering real estate market brought about decreased lending and mortgage defaults. In September, Smeal’s Brent Ambrose addressed the transformation of Fannie Mae and Freddie Mac in his post, “Breaking Up Fannie Mae and Freddie Mac.” In addition, Smeal’s Austin Jaffe outlined ten principles to help navigate the new real estate economy in his October post.
With the Obama administration came the appointment of various czars. One that made headlines was Kenneth Feinberg, the pay czar, proving that executive compensation was a hot topic in 2009 and Smeal’s Don Hambrick, Ed Ketz, and Tim Pollock had much to say about it. In May, Hambrick noted that an increase in CEO’s stock offerings could potentially lead to more risk-taking by the CEO. In his study, he suggests a better way to compensate CEOs. In addition, Ketz recommends giving shareholders more influence over corporate boards in his July post. Pollock goes as far as to say that it is going to take a cultural shift, not a pay czar, to rein in executive compensation.
Retailers had to adjust their strategies given the decrease in consumer confidence and lack of spending. In July, handbag retailer Coach, Inc. aimed to lower prices, while maintaining its luxury image. Smeal’s Lisa Bolton offered various strategies for marketers to position their luxury brands in a weakening economy. Starbucks went through the same dilemma as they adjusted pricing to portray the image of being both an affordable and premium brand. Smeal’s Jennifer Chang Coupland thought this might be a rather risky approach and outlined the reasons why in her August post.
Tags: Ambrose, Coach, Coupland, Executive Compensation, GM, Guay, Hambrick, Housing, Jaffe, Ketz, L. Bolton, Management, Marketing, Pay Czar, Pollock, Real Estate, Smeal, Starbucks
Posted in News | 2 Comments
Wednesday, May 6th, 2009
Executive compensation is taking a big hit in the down economy. The Associated Press reports that “90 percent of the $1.2 billion in CEO stock options granted last year are ‘under water,’ meaning the current stock price is too low to yield a profit.” Some boards are responding by offering even more stock options to their CEOs.
Critics say this move could lead to CEOs taking on more risk, and research from Smeal’s Donald Hambrick supports this concern. In their 2007 report “Swinging for the Fences: The Effects of CEO Stock Options on Company Risk-Taking and Performance,” Hambrick and Gerard Sanders of Brigham Young University find that CEOs with stock option-heavy compensation packages do tend to take on more and bigger risks. These greater risks lead to more extreme corporate performance “more likely to be in the form of big losses than big gains.” In other words, these CEOs who swing for the fences, “strike out much more often than they hit home runs.”
A better way to compensate CEOs, according to the study, might be restricted stock—stock that can only be sold after a certain amount of time passes or a certain goal is achieved. “Stock ownership causes CEOs to be equally concerned about gains and losses,” Hambrick and Sanders write, “whereas stock options encourage CEOs to think primarily about upside potential and little about downside.”
More on their study is online here.