In Chapter 16, we will learn about moral hazard, a scenario where an executive will shirk if he/she is not given the proper incentives to work hard. In this project, you will study how real companies design incentive contracts to motivate their executives to work hard. The following is the instructions for the project.
1. Go to Edgar: www.sec.gov and locate the most recent proxy statements (form DEF 14A) for at least five companies (preferable in the same industry). Please use the variable “NAICS” in the company list file that I attached to identify firms within the same industry. The following link will explain how the variable “NAICS” is defined.
2. Collect 12 quarters of financial information (sales, gross profit, net income, and EPS etc.) and input the data into Excel. Use Tableau to read the Excel data and create graphs and figures to help you analyze the companies’ financial performance.
3. Read the executive compensation sections of the proxy statements that you collected. Write a report that incorporates in the following:
· What metrics do companies use when designing their executives’ compensation contracts?
· Who is in the compensation committee?
· Who is in the audit committee?
· How many of those metrics are accounting-based, return-based, or neither accounting- nor return-based?
· Which metrics are unique to this industry?
· For each metric, discuss the reasons it is included in the contracts.
· Compare the compensation contracts across your sample firms.
· Is there a relation between the composition of the audit/compensation committee and a firm’s compensation contracts for executives?
· Use your analysis on companies’ background and financial performance, discuss the reasons for the variations in contracts across your sample firms.
You must supplement graphs or figures in your analysis using Tableau.
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