CEO COMPENSATION AND SHARE REPURCHASES POLICY

CEO Compensation and Share Repurchases Policy

Motivation

The research will endeavour to assess the crosscutting relationship that transpires between the CEO compensation and the preference for a share repurchases policy in contrast to dividend payout. The topic was chosen following the close evaluation of corporate share repurchase growing trend. In the years 2013, for example, S & P 500 companies buybacks amounted to $ 475.6 billion, which, despite been low than $589.1 billion of the year 2007, is significantly high since the 2008/2009 global financial crisis (Von Eije & Megginson, 2014). Similarly, European companies have registered an increased share repurchase, which is accompanied by decline in dividend payout as elucidated by an increase in aggregate share repurchase amount in UK from £ 636 million in the year 1998 to about £ 28 billion by the end of the year 2006 (Lasfer, 2013). Of much interest, however, is associated link between the increase in share repurchase and CEO’s equity-based compensation.

The CEO compensation in the form of the stock option, which does not attract any dividend, can give them preference for the share repurchase, which will increase the aggregate value of the company’s stock. According to the NBER (US National Bureau of Economic Research) Working Paper No. 6467, revealed that an average CEO in USA who holds stock option in the company enjoyed an average $ 345000 stock option value increase as a result of repurchase activity in 1992. This study will assess the impact of CEO compensation on the Share repurchase policy, thereby provide sound background information against which shareholders and other corporate stakeholders can use to make various decisions that hinge on organizational dividend or repurchase decision. The research finding will shed light on the motivation behind the increase in share repurchase over dividend payout and reveals its impact on the shareholders, which will ultimately affect the corporate directors in deciding on CEO compensation.

Literature

Various studies previous studies have covered this topic. However, most of these studies focus on factors that lead preference of share repurchases by the executive management. This leaves an academic knowledge gap on the link between the CEO compensation, and the share repurchases policy. To fill this knowledge gap, this research evaluates first the method, findings and problem tackled in the previous policy. The following previous work on the topic will anchor the conceptual framework of this research and provide background information……………………………

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