Abstract
It can be said that short-termism and excessive executive compensation are drawing critical and negative attention in recent years, judging from famous politician's lecture and the passage of law forcing to publicly disclose the ratio of the compensation of the chief executive officer (CEO) to the median compensation of that company's employees. We assume that these management problems are sharpened by human instinctive discounting behavior. By brain experiment of discounting behavior (neuro-science method), we scientifically reveal that stimuli like globalization mobilize new brain parts (precuneus, IPL, TPJ), sharpen human discounting behavior and in turn sharpen the management problems. The research results show that human beings predict other people's discounting behavior more sharply than their own by additionally activating new parts of brain. This in turn will sharpen their discount behavior. This chain of discounting behavior and activation of new brain parts becomes prominent in the globalization of economies involving more strangers. In order to stop the sharpening of management problems, improvement policies counter to human instincts become necessary. Our research results are closely related to resolve some of the problems by using accounting institutions. For example, since the institutionalization of the quarterly report promotes the short-termism, its rectification is necessary. Also, in order to correct the distortion of corporate compensation structure, the SEC oversees the disclosure of remuneration for middle-ranking worker and is seeking full-fledged institutionalization. Implementation of these accounting policies are strongly supported by our research results.
Highlights
In 2015, two major management issues that had been raised previously were once again the focus of debate in the United States
In terms of the latter issue, in an effort to curb excessive executive compensation, under the Dodd-Frank Wall Street Reform and Consumer Protection Act, firms were obligated to publicly disclose the ratio of the compensation of the chief executive officer (CEO) to the median compensation of that company’s employees, but in August 2015, the SEC slightly amended the regulations in terms of the specific way in which that was to be done, which was to be implemented from 2018
There are many researchers who consider short-termism to be one of the factors that led to the collapse of Lehman Brothers that occurred in the United States in 2008 (Dallas, [2])
Summary
In 2015, two major management issues that had been raised previously were once again the focus of debate in the United States Those two issues were short-termism and excessive executive compensation. Short-Termism, Excessive Executive Compensation, and the Discounting Traits of Managers - by Using fMRI Experiment a tendency for executives to increase their own compensation while maintaining low compensation for middle management, with whom they are relatively close, and laborers, from whom they are increasingly alienated This distribution trend has continued to be noted in America. Even if we assume that hyperbolic discounting is the inherent human discounting tendency, what is unique about the recent management issues is that manager discount rates have become even more radical, exceeding the general tendency, and that the focus on short-term performance and the attention that the relative increase of executive compensation has drawn are major issues characterizing modern management. For the purposes of this essay, the human act of discounting the future value from a temporal perspective is referred to as “time discounting,” while the act of discounting the value attributed to others in interpersonal relations is called “interpersonal discounting.” estimating one’s own discount rate is called “individual discounting,” while the act of estimating another person’s discount rate rather than one’s own, in an expedient manner, is called “social discounting.”
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