Executive Compensation Based On Asset Values

This paper describes how credit default swaps could be employed to create performance based executive compensation portfolios that reflect the value of a firm's debt as well as equity; i.e. the total value of all a firm's assets. So-called Asset Value Unit (AVU) compensation portfolios are defined and compared to ordinary (long-term incentive) stock compensation portfolios for a range of banks from the recent EU-wide stress testing exercise conducted by the Committee of European Banking Supervisors (CEBS).