A recent article published in Forbes refers the work by prof. Nikolaos Kavadis and his coauthor, prof. Xavier Casta\u00f1er, of the negative consequences, in terms of firm diversification, of designing CEOs incentive schemes based on stock-like variable compensation in order to tackle classical agency problems. The research article by Kavadis and Casta\u00f1er was published in the Strategic Management Journal.[quotation extracted from Forbes Magazine]\u00a0\u00a0\u201cIn short, Casta\u00f1er and Kavadis\u00a0believe\u00a0that agency theory actually encourages the diversification of companies into different fields that has often proved so ruinous for shareholder value. Based on an extensive study of French companies, many with international operations, they conclude that, in Castaner\u2019s words, \u201cneither the granting of stock options to the CEO, nor the CEO\u2019s ownership of shares had a significant constraining effect on financial diversification.\u201d Rather, the variable compensation associated with moving executives from strict salaries \u201cactually leads to more financial diversification.\u201d This is because the executive sees this unpredictability of compensation as risk \u2013 to which agency theory assumes executives are averse \u2013 and compensates by trying to make revenues less volatile and so increase the chances of hitting performance targets. At the same time, executives enhance their situation by creating organizations that are bigger and more complex and so require them to be paid more to run them\u201dRead the full article here:\u00a0http:\/\/www.forbes.com\/sites\/rogertrapp\/2016\/04\/08\/how-the-law-of-unintended-consequences-sent-executive-pay-soaring\/#176d5026f929\u00a0Read the original research article here:\u00a0\u00a0http:\/\/onlinelibrary.wiley.com\/doi\/10.1002\/smj.2040\/<\/p>\n","protected":false},"template":"","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}}},"class_list":["post-3328","news","type-news","status-publish","has-post-thumbnail","hentry"],"yoast_head":"\n