Hometown heroes: the influence of local board chairs on executive compensation

The effect of board chairs’ hometown identity on labor cost stickiness

Neoliberal scholars have attributed the inefficiency of state owned enterprises (SOEs) on ineffective monitoring arrangements in weak institutional environments and predicted their ultimate demise. But continued and significant presence of SOEs in emerging economies like India, even after two decades of economic reforms has provoked us to revisit the ownership performance debate. We study the effect of ownership and reforms on the performance of the entire population of firms in India over a twenty year period. Since, India has significant presence of business group affiliated firms and subsidiaries of MNCs and business groups tend to create internal markets and MNCs resort to internalization to compensate for the weak institutional environment, we have adopted finer grained classification of privately owned firms. We find that the state owned enterprises have not only turned around but have been outperforming firms from other ownership categories on certain parameters. We argue that firms in an emerging economy like India do not suffer from a lack of monitoring arrangements because of the so called ‘weak institutional environment’. It is likely that the institutions that are more relevant and influential in this context are rooted in the social structures, and perhaps not so much the traditional legal and economic institutions prevalent in developed economies. Hence the reform process has merely helped in opening up more opportunities for some categories of firms, thereby impacting performance.

We examine the associations between board chair–CEO relationship, board chair characteristics, and top executive compensation in U.S. nonprofit organizations. Using a sample of 2,153 organization-year observations in our empirical tests, we find a significant positive association between board chair–CEO relationship and top executive compensation. We find that board chair characteristics such as tenure and gender are not significantly associated with top executive compensation. The supplementary analyses suggest that board chair–CEO relationships are positively associated with executive compensation but for only organizations with larger revenues, a bigger board, and a lower change in percentage of program expenses. The findings should be helpful in enhancing the understanding of influencing factors on nonprofit executive compensation.

We examine the influence of corporate compensation policies on firms’ tax aggressiveness in an emerging market where executive compensation is primarily in cash form. Based on a hand-collected dataset of 958 firm-year observations of Chinese listed firms for the 2006–2012 period, we find that firms paying higher executive cash compensation are associated with lower tax aggressiveness. This relationship also holds for the excess cash compensation measures which control for executive shareholding, firm profitability, size, growth opportunity, and board independence. We further document that mutual funds ownership pressure firms paying higher compensation to reduce their tax aggressiveness, suggesting adverse selection by mutual funds on firms exhibiting risky tax avoidance activities. High leverage offsets the negative link between cash compensation and tax aggressiveness, indicating a complementary effect between debt and tax avoidance, and, hence, suggesting that creditor monitoring is weak. These results are robust to the system-GMM estimation, which simultaneously account for the endogeneity of executive compensation, tax aggressiveness, ownership and control, leverage, and corporate governance. Our findings on Chinese firms have important policy implications for developing countries around the world with concentrated ownership structure, weak institutional environment, widespread corruption, ineffective rule of law, and ongoing significant social and political transformation.

Does the mixed ownership reform work? Influence of board chair on performance of state-owned enterprises

Purpose Given the unresolved question about which causal conditions contribute to accelerated internationalization among small and medium enterprises (SMEs) from weak institutional environment, this paper aims to combine theoretically relevant antecedents of domestic networks relationships (weak or strong domestic ties) and decision-making logic (effectuation or causation) to explore the configurations that are the most promising for explaining accelerated internationalization. Design/methodology/approach This study uses fuzzy-set qualitative comparative analysis (fsQCA) to examine the accelerated internationalization of 33 contrarian cases of SMEs located in weak institutional environment. The data set has been collected through in-depth interviews with managers in Colombia (21 cases) and Peru (12 cases). Building on the findings, an integrative model for accelerated internationalization is presented. Findings The authors found that the combination of weak domestic ties and effectuation logic accelerated the internationalization of SMEs with fewer resource constraints. In contrast, strong domestic ties and causation behavior lead to accelerated internationalization of SMEs with greater resource constraints. They propose a model to help enrich the existing literature about the causal configurations for achieving accelerated internationalization in SMEs from weak institutional environment. Originality/value The contribution of this study is to provide empirical evidence to address three shortcomings in the literature. First, the mixed results regarding the impact of strong and weak domestic ties and decision-making logic in the accelerated internationalization of SMEs; second, the limited research on domestic networks; and third, the scarce investigation in weak institutional environment, where the emphasis on constrained resources is higher.

Monitoring function of the Chinese two-tier-board system is expected to affect firms' executive compensation in two ways: (i) improve firm performance which is considered as a partial basis of executive compensation (ii) monitor executives' behaviors to avoid over-pay. This article investigates if corporate governance mechanism indeed benefits in these two ways from major characteristics of supervisory boards, one of the two monitoring organs in Chinese publicly listed companies. We find that supervisory board size is negatively related to the board chair pay, presumably because the monitoring effects of the size of supervisory board on board chair's behaviors dominate those on firm performance. We also find a high level of board chair pay-supervisory board sensitivity in the Chinese publicly listed companies. JEL Classifications : G34, G39 Keywords : Board chair pay; Monitoring; Corporate governance

PurposeThis paper aims to establish a theoretical framework that can comprehensively explain the executive compensation in state-owned enterprises (SOEs) within the context of socialism with Chinese characteristics.Design/methodology/approachThe author develops a theoretical framework for executive compensation in SOEs from the perspective of Marxist economics and points out that the executives in SOEs are engaged in management labor, and their compensation should adhere to the principle of distribution according to labor contribution.FindingsBased on this theory, the author posits that the continuous upward trend of executive compensation in SOEs, is consistent with the trend of SOEs' ongoing expansion, which reflects a continuous improvement of SOE executives' management labor in both quality and quantity.Originality/valueIt is necessary to start with Marxist economic theory and scientifically study the issue of SOE executive compensation, adhere to the principle of distribution according to work in the context of a socialist market economy and implement the specific guideline of the Party Central Committee; only in this way can the long-term healthy development of SOEs be promoted continuously.

This paper makes an in-depth analysis of the characteristics, the motivation and the intervention effect of government intervention in executive compensation in state-owned enterprises (SOEs). The research shows that the local government always makes and implements differentiated compensation regulation policies according to the marketization degree, the income gap, the financial deficit level, the unemployment rate and the GDP growth rate. However, from the perspective of intervention effect, such government intervention in executive compensation weakens the compensation performance sensitivity of SOEs executives, effects the future performance of Chinese SOEs, and it has a greater negative impact on competitive SOEs. The conclusion indicates that the government should improve the pertinence and validity of government behavior and try to establish differentiated executive’s compensation incentive mechanism that matches the governance behavior of modern SOEs with Chinese characteristics.

Marketization is the most fundamental principle of state-owned enterprise executive compensation reform, and state-owned enterprises can realize the marketization of executive compensation only if they implement the modern enterprise system. From the perspective of the modern enterprise system, the current problem of executive compensation pricing in state-owned enterprises mainly includes the lack of efficacious measurement methods for pricing and compensation pricing standards, and current policy and regulation restrictions on executive compensation. On this basis, the basic model of executive compensation pricing for state-owned enterprises was designed. At the same time, corresponding measures are proposed to ensure the normal operation of the basic model to improve the scientific nature and rationalization of the regulation to income distribution of state-owned enterprises.

This study seeks to understand why and how multinational enterprise (MNE) subsidiaries use non-market strategies to establish legitimacy in weak institutional environments. By adopting an in-depth qualitative approach, we explore the non-market strategies enacted by four MNE subsidiaries operating in Cameroon. We find that MNE subsidiaries endeavour to gain legitimacy and social reputation in weak institutional environments by engaging with multiple local stakeholders through corporate social responsibility and political non-market strategies. Our findings support the previous studies on emerging African markets that the host-country government remains the most critical and challenging stakeholder. However, firms experience legitimacy risks due to their strong ties with the government during periods of political and social instability. The subsidiaries mesh social with political strategies and use them as complementary strategies for developing their social reputation and gaining social license to operate in the host market, thus mitigating social and political risks from aligning with the host government. We draw implications of these findings for research and practice.

This chapter investigates the theoretical frameworks and recent empirical evidence of executive compensation in emerging markets. The author outlines theoretical evolutions and identifies unique aspects of institutional features in determining the pay scheme in emerging markets. Due to family ownership and political influence within state-owned enterprises (SOEs) in emerging economies, the agency-based bargaining takes place in firms with strong governance while entrenchment-based skimming takes place in firms with weak governance, and this could lead to a relation-based rather than a market-based compensation contract. The literature seems to be heading into the direction of considering executive pay as an outcome of pay setting practices, embedded in socially constructed corporate governance arrangements. The author highlights the importance of executive compensation studies in emerging economies and calls for future research by integrating the institutional features of emerging markets into investigations of the various pay practices across different jurisdictions.

Executive Compensation and Corporate Governance in Emerging Markets: The Theoretical Framework and Recent Developments

State-owned enterprises (SOEs) play a significant role in providing public goods and services such as utilities and infrastructures. They also play a considerable role in promoting a country’s national agenda, such as providing employment opportunities, promoting national corporates and implementing socioeconomic and industrial policy. Since the state is a significant owner of SOEs, the latter enjoy a monopolistic position in the market and have a competitive advantage vis-à-vis other private enterprises. This creates many unintended market consequences such as inefficiency, nontransparency, and weak governance. Various regulatory and institutional frameworks for reforming SOEs have been adopted by countries around the world in order to stimulate competition, increase efficiency, and improve the level of their performance. However, the outcomes of these reforms are rather mixed. In Asia, for example, many SOEs are still operating less efficiently due to their complacent position in the market leading to poor performance. Against this backdrop, this paper aims to explore the experience of regulatory reform of SOEs in Thailand and Malaysia and the challenges that the countries are or have been facing in undertaking such reform. The paper will be divided into five main parts. The second part explores the international perspective of regulatory frameworks, designed to incentivize reforms of SOEs. The third part explores the experience of Thailand and Malaysia in constituting their regulatory frameworks for the reform of SOEs. The fourth part discusses and analyzes the approach of Thailand and Malaysia toward the reform of SOEs as well as issues and challenges associated with such reform. The fifth part concludes the paper and provides some recommendations regarding better regulatory frameworks for the reform of SOEs.

To shed light on whether and how firms changed compensation practices in response to a shift in the environment in which they operated, we examine whether there is contagion effect of executive compensation regulation on state-owned enterprises (SOEs) in the emerging market of China. Specifically, we investigate whether firms not directly affected by the changing regulatory environment nonetheless changed executive compensation in response to the actions of the directly affected firms, which is called contagion effect. We further examine the specific contagion mechanisms and the economic consequences of regulation on compensation. We find that the regulation has a significant effect on compensation gap in central SOEs and a contagion effect on local SOEs but not for non-SOEs. Within SOEs, there is an intra-industry contagion effect of compensation regulation but not an intra-region effect. Further, central SOEs and local SOEs experience reduced firm performance after the compensation regulations, but not the non-SOEs; indicating that the compensation regulation does not have favorable economic consequences for both the directly affected central SOEs and the indirectly affected local SOEs.