Managerial Influencing of Boards of Directors

In this paper, I examine issues relating to managers' ability to influence their performance evaluation. In contrast to conventional wisdom, I show that such influencing is not necessarily deleterious to shareholder welfare, despite the fact that it is aimed at maximizing the managers' compensation. In particular, I show that the managers' influencing actions can, under some conditions, improve the performance evaluation process. This mitigates the control problem between the boards of directors and managers and lowers managerial compensation costs. I also show that the managers' influencing actions can alleviate the need for costly board equity awards -- to align board interests with those of the shareholders. This suggests that boards with smaller equity stakes may not necessarily have weaker incentives to monitor managers