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- Creators: Solanki, Prachi Sudhir
- Creators: WPC Graduate Programs
- Member of: Theses and Dissertations
- Member of: Barrett, The Honors College Thesis/Creative Project Collection
Description
Executive compensation is broken into two parts: one fixed and one variable. The fixed component of executive compensation is the annual salary and the variable components are performance-based incentives. Clawback provisions of executive compensation are designed to require executives to return performance-based, variable compensation that was erroneously awarded in the year of a misstatement. This research shows the need for the use of a new clawback provision that combines aspects of the two currently in regulation. In our current federal regulation, there are two clawback provisions in play: Section 304 of Sarbanes-Oxley and section 954 of The Dodd\u2014Frank Wall Street Reform and Consumer Protection Act. This paper argues for the use of an optimal clawback provision that combines aspects of both the current SOX provision and the Dodd-Frank provision, by integrating the principles of loss aversion and narcissism. These two factors are important to consider when designing a clawback provision, as it is generally accepted that average individuals are loss averse and executives are becoming increasingly narcissistic. Therefore, when attempting to mitigate the risk of a leader keeping erroneously awarded executive compensation, the decision making factors of narcissism and loss aversion must be taken into account. Additionally, this paper predicts how compensation structures will shift post-implementation. Through a survey analyzing the level of both loss- aversion and narcissism in respondents, the research question justifies the principle that people are loss averse and that a subset of the population show narcissistic tendencies. Both loss aversion and narcissism drove the results to suggest there are benefits to both clawback provisions and that a new provision that combines elements of both is most beneficial in mitigating the risk of executives receiving erroneously awarded compensation. I concluded the most optimal clawback provision is mandatory for all public companies (Dodd-Frank), targets all executives (Dodd-Frank), and requires the recuperation of the entire bonus, not just that which was in excess of what should have been received (SOX).
ContributorsLarscheid, Elizabeth (Author) / Samuelson, Melissa (Thesis director) / Casas-Arce, Pablo (Committee member) / WPC Graduate Programs (Contributor) / School of Accountancy (Contributor) / Barrett, The Honors College (Contributor)
Created2018-12
Description
Prior research suggests that people ignore evidence that is inconsistent with what they want to believe. However, this research on motivated reasoning has focused on how people reason about familiar topics and in situations where the evidence presented interacts with strongly-held prior beliefs (e.g., the effectiveness of the death penalty as a crime deterrent). This makes it difficult to objectively assess how biased people are in motivated-reasoning contexts. Indeed, recent work by Jern and colleagues (2014) suggests that apparent instances of motivated reasoning may actually be instances of rational belief-updating. Inspired by this new account, the current studies reexamined motivated reasoning using a controlled categorization task and tested whether people assimilate evidence differently when they are motivated to maintain a certain belief versus when they are not. Contrary to earlier research on motivated reasoning, six studies with children and adults (N = 1295) suggest that participants’ motivations did not affect their information search and their beliefs were driven primarily by the evidence, even when the evidence was incongruent with their motivations. This work provides initial evidence for the account proposed by Jern and colleagues.
ContributorsSolanki, Prachi Sudhir (Author) / Horne, Zachary S. (Thesis advisor) / Duran, Nicholas (Committee member) / Neal, Tess (Committee member) / Arizona State University (Publisher)
Created2019