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Summary, Analysis, Response Paper

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    B. C. Henderson, A. Masli, V. J. Richardson, and J. M. Sanchez take a closer look at the relationship between layoffs and the compensation of the chief executive officer (CEO). Through quantitative research they discover that as the number of layoffs increase, CEOs’ bonus compensation decreases and their equity-based compensation increases (2010). Also in their research, they find that more powerful CEOs take smaller reductions in pay in comparison to smaller CEOs, even though the market performance of their firms is not superior (2010).

    Analysis. The Journal of Accounting, Auditing & Finance is edited by multiple professors at the Vincent C. Ross Institute of Accounting Research of New York University. It also consists of twenty-seven associate editors from various universities across America. Henderson, Masli, Richardson, and Sanchez have written the specific article, “Layoffs and chief executive officer (CEO) Compensation: Does CEO power influence the relationship? ” The four authors are all members of the Department of Accounting at Mississippi State University and the University of Arkansas, respectively.

    It doesn’t take long reading into the article to realize it was written for a well-educated, accounting/finance professional. Within the first few pages, Henderson et al. (2010) repeatedly refer to the “managerial power theory” without an explanation of what it is. Their assumption is that the reader has a wealth of financial knowledge. And if they don’t, they have no business reading this article. Even with four years of accounting and business education, I only have a vague idea of what the “managerial power theory” is.

    The writing consists of short, to the point paragraphs littered with business jargon. For example, “CEO centrality is defined as CEO pay slice (CPS), the percentage of aggregate top-five total compensation captured by the CEO (Henderson et al. , 2010, p. 716) The diction makes the reading very complicated, and I found myself re-reading sentences multiple times to clarify. When you add the complexity into the fact that it is a nearly forty page report, it makes for a very dull read unless you enjoy robotic like talk.

    My style of writing does not seem to mimic that of my future colleagues, as I enjoy adding some sort of character to break up the monotony of a report. The actual evidence gathered to determine the relationship between layoffs and CEO compensation was the strongest part of the report. Well, at least the statistical portion. Henderson et al. (2010) began by developing certain hypotheses on what they already believed to be true. One of the hypotheses tested was, “H2a: More powerful CEOs experience smaller decreases in bonus compensation in response to increased layoff magnitude” (Henderson et al. , 2010, p. 716).

    Then using their vast amount of data collected on 1,500 firms from 1992-2004, they were able to statistically test the hypothesis to find it valid (2010). The sheer amount of data used, and the complex formulas designed to do the testing make the evidence extremely difficult to refute. But, it almost seems like there is TOO much number crunching. While it is an accounting journal and numbers are too be expected, that’s all there is. Yes it avoids anecdotal evidence, but there’s no testimonial or analogical evidence. The complexity of the formulas alone will ward off most readers from even getting a few pages in.

    The writers should have considered adding some more relatable items into the report; unless their intentions were to bore the reader to death so they wouldn’t try to argue against what they just read. Henderson et al. created the report because they believed that past studies had not given a conclusive enough answer to whether layoffs were associated with improvements of firm performance (2010). I question whether they believed past reports were not conclusive, or if they just didn’t agree with what past reports had to say. In the beginning they describe CEOs as being labeled as “villainous” and “greedy” during layoffs (2010, p. 12). Those are awfully strong words to throw around when trying to remain neutral. I understand hypothesis testing requires you to start with some sort of hypothesis, but all of theirs portrayed powerful CEOs in a bad light. The earlier hypothesis of “powerful CEOs experience smaller decreases in bonus compensation” and another of “powerful CEOs experience larger increases in equity compensation” (2010) give the writers some sort of bias whether intended or not. It’s almost as if they created these hypotheses to test, and then proved them valid, and said, “Well, I guess we were right all along! ”

    Response I’ve never thought of my major as exciting by any means. When I decided to go into accounting, it was because I was pretty interested and it was something I excelled at. I often hear jokes about accountants being dull, and even had a cousin tell me, “You have too much personality to be an accountant! ” I’ve met numerous professionals and accounting majors who all seem to be very down to earth, charismatic people. But this article has made me wonder what I’ve gotten myself into! I don’t have any intentions of switching majors, but I really couldn’t have imagined a report being so boring.

    Maybe my lack of knowledge for the material made it a more difficult read, but it was like reading through the dictionary. Then the lack of comprehending the reading made the writing more difficult. What a vicious cycle! From what I can tell, (and hope) this report was something that had to written in such a boring manner. It wasn’t meant to be interesting or fun, it was meant to educate a professional field on a particular topic with no room for opinion, just facts. Hopefully I can add some character to the accounting field in the near future!

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