Trust matters to fiduciary law in a variety of ways. This chapter will focus on the importance of trust in advisory relationships, and it will emphasize two settings: categorical fiduciary relationships and ad hoc fiduciary relationships. In the former setting, I will suggest that these relationships are appropriately treated as fiduciary in part due to the likelihood of a beneficiary’s epistemic dependence on a fiduciary’s judgements. It is not necessary for epistemic dependence to exist in any particular advisory relationship to support this categorical treatment, so long as the likelihood of epistemic dependence is high enough across the category. In turn, the presence of trust supports the likelihood of that epistemic dependence. In the ad hoc fiduciary setting, I will suggest that these relationships are sometimes best seen as a kind of “involvement” (as that concept is developed in David Owens’s work). Involvements are voluntary relationships even though they may have no precise moment when they come into existence. Importantly, the existence of involvements is generally recognizable by the parties involved. Trust is relevant here as an aid in legally identifying such relationships.

While there are many powerful programming languages that one could use for solving data science problems, people forget that one of the most powerful and simplest tools to use is right under their noses. And that is UNIX. The name may generate images of old-time hackers hacking away on monochrome terminals. Or, it may hearken the idea of UNIX as a mainframe system, taking up lots of space in some warehouse. But, while UNIX is indeed one of the oldest computing platforms, it is quite sophisticated and supremely capable of handling almost any kind of computational and data problem. In fact, in many respects, UNIX is leaps and bounds ahead of other operating systems; it can do things of which others can only dream!

This chapter connects pay to the important (and costly, from an organizational standpoint) subject of employee turnover. It opens by discussing how the level of pay relates to workers’ turnover rates. A discussion of the timing of compensation (over the course of the worker’s career or tenure with the employer) follows, the key point being that deferred compensation encourages retention. Employers might renege on deferred-pay contracts, which introduces risk for workers. The chapter covers workers’ perceptions of risk as they pertain to the timing and design of pay and to sorting effects. When pay is deferred, workers sometimes advance to a career stage in which their pay outpaces their productivity, at which time employers would like them to quit. Inducing workers to leave can be tricky, particularly given the external and internal constraints covered in Chapters 4 and 5. Sections 12.5 and 12.6 concern severance packages and buyouts, which basically involve paying workers to leave. The conditions under which such payments are offered and accepted are covered. The chapter ends with coverage of corporate raids and when a manager should match an outside offer received by an employee.

This chapter on executive compensation and stock options is effectively a continuation of Chapter 9 on performance pay. It provides an overview of executive compensation and an intuitive, non-technical treatment of stock options that focuses on the worker incentives that options create. There is a lot of discussion of risk (of income loss) that builds on Chapter 9, and the “pay for luck” discussion that ends the chapter concerns the possibility of firms’ reneging on CEOs’ bonus payments, which echoes the wage-theft themes from Chapter 2. Section 10.2 covers the executive bonuses known as “80/120” plans, representing them pictorially as nonlinear functions of a performance measure (that are upward-sloping in some parts, as in the performance-pay graphs of Chapter 9). The section on stock options is detailed and explains all of the key terminology and the most important concepts in this area. The distinction between the intrinsic value and the market value of an option is made carefully, with an intuitive, non-technical discussion of the Black–Scholes–Merton options valuation formula, and the role of risk is explained in detail.

This chapter teaches readers to think about training both as a form of current compensation and as an investment in future pay (because training makes workers more productive, allowing them to earn more in the future). Training is a form of current pay because workers value training (precisely because it increases their future expected compensation) and, for that reason, they are willing to accept lower current compensation than they would receive in an alternative job that is otherwise the same but that does not offer training. This evokes compensating differentials (Chapter 3). The portability of training across firms is covered, as well as whether employees or employers should pay for training and whether the skills imparted by training are general (i.e., useful across many employers) or specific to the current employer. The internal rate of return (or breakeven interest rate) is covered in the context of whether it is profitable to train workers. Section 8.5, on practical applications, gives tips for how managers can obtain information on the key components of the training decision, i.e., employee productivity and expected tenure after training, costs, and the interest rate.

This chapter provides more comprehensive coverage of promotions than is typically seen in compensation texts. The subject is important for compensation because employees' biggest raises usually involve promotions, so promotions are intimately connected to pay growth. Plus, promotion prospects are valued by workers and might make them willing to accept lower pay than they would receive in (otherwise identical) jobs that offer little or no promotion prospects, which connects to the concept of compensating differentials (Chapter 3). This chapter gets the reader-manager thinking about compensation structures within an entire organization, i.e., how the compensation differs across levels of the job hierarchy. The chapter opens by describing the role of promotions in creating worker incentives, both productive and perverse, and in matching workers to jobs ideally within the company. The question of why promotions usually come with big raises is covered, as is the important and common managerial problem of internal-versus-external hiring. The implications of turnover for promotions (and vice versa) are covered, as are up-or-out policies that require employers to fire non-promoted workers.

So far, our work on data science problems has primarily involved applying statistical techniques to analyze the data and derive some conclusions or insights. But there are times when it is not as simple as that. Sometimes we want to learn something from that data and use that learning or knowledge to solve not only the current problem but also future data problems. We might want to look at shopping data at a grocery chain, combined with farming and poultry data, and learn how supply and demand are related. This would enable us to make recommendations for investments in both the grocery store and the food industries.

This chapter offers a new explanation for mandatory fiduciary protections in certain business relationships—the preservation of trust that might otherwise be eroded through the bargaining process. Any contract a hypothetical entrepreneur and an investor might enter would inevitably be incomplete and give rise to potential opportunistic behavior. While the parties could draft a more detailed agreement prohibiting various forms of opportunism, the very act of bargaining over these protections could undermine whatever trust existed between the parties at the outset of their relationship. By contrast, a prohibition limiting opportunism in state-imposed fiduciary obligations removes the invocation of distrust by either party to the agreement. Fiduciary protections, however, do not provide a perfect solution in all business relationships. Although fiduciary duties can usefully constrain opportunism and preserve trust in vertical business relationships, such as in a simple principal-agent arrangement, other situations involve complexity that pose challenges for fiduciary law. We illustrate this observation with examples of various horizontal conflicts, or diverging interests, in the venture capital-backed startup context. To the extent that contract and fiduciary law are each incomplete, a residual domain for trust and other mechanisms for risk reduction or self help remains.

Under which conditions will a public authority intervene in private governance such as certification and eco-labeling schemes for sustainably produced goods? This chapter introduces this research question by presenting the empirical puzzle the book addresses: Why has the European Union (EU) intervened in private governance that deals with organic agriculture and biofuels, but has not intervened in private governance dealing with fair trade and fisheries? The chapter distinguishes between a public authority intervening with standards regulation that involves creating a public definition of sustainable production, and with procedural regulation that addresses the way private governance schemes are organized. The argument the book develops is that whether a public authority intervenes with standards and/or procedural regulation depends on the interplay of two variables: the domestic benefits of product differentiation by a public authority and the fragmentation of the private governance market. The chapter situates the book in the current state of the literature on the interactions between public and private governance and explains the research design and research contributions.

We begin with two bibliographical observations. First, scholarly interest in trust is no recent phenomenon, but lately there has been a flowering of academic literature studying numerous dimensions of trust from the standpoints of philosophy, economics, sociology and psychology. The depth and richness of this literature is impressive but hardly surprising, given that trust itself is a notoriously complex, elusive and fact-specific phenomenon. Secondly, scholarly interest in the fiduciary principle that plays such a central role in common law legal systems with a tradition of equity was scarce until the late twentieth century. However, that situation has most definitely changed (for the better), and we now enjoy an abundance of scholarship exploring the fiduciary principle in private law. Moreover, there is a growing body of work exploring ideas of fiduciary government and international law. Scholars are puzzling over fiduciaries and trust as never before.

In the previous chapter, we saw how to learn from data when the labels or true values associated with them are available. In other words, we knew what was right or wrong and we used that information to build a regression or classification model that could then make predictions for new data. Such a process fell under supervised learning. Now, we will consider the other big area of machine learning where we do not know true labels or values with the given data, and yet we will want to learn the underlying structure of that data and be able to explain it. This is called unsupervised learning.

This chapter covers internal constraints on pay, as opposed to the external constraints (namely labor law) covered in Chapter 4. Much is said about collective bargaining agreements in unionized settings, and the effect of unions on pay and pay dispersion. From the standpoint of managers, internal and external constraints are nearly identical in that both are sets of rules that must be followed to avoid negative consequences. One difference is that internal constraints are often more amenable to managerial influence; for example, collective bargaining agreements are renegotiated every few years, and management participates. The 3 Cs of compensation constraints are revisited in the context of internal constraints, as are compensation floor and ceilings. Pay compression is discussed, given its prevalence in unionized settings. Diverse preferences in the union membership are addressed in the context of a vote on seniority-based layoffs versus across-the-board temporary wage cuts, i.e., furloughs. Other (non-union) internal constraints are covered, such as those imposed on individual establishments by corporate headquarters, and company-wide design of the benefits package in pay plans.