Asymmetric Benchmarking Research Articles

CEO pay-performance sensitivity and pay for luck and asymmetry

PurposeThis paper studies the relationship between CEO pay-performance sensitivity and CEO pay for luck as well as the asymmetric benchmarking of CEO pay in which good luck is rewarded but bad luck is not penalized symmetrically. We further explore the impact of the regulatory changes on executive compensation taking effect in the 2000s on CEO pay for luck and asymmetry.Design/methodology/approachIn this study, we examine the relationship between CEO pay-performance sensitivity and CEO pay for luck and the asymmetric benchmarking of CEO compensation. The sample consists of DJIA component companies over a 71-year period from 1950 to 2020. CEO pay-performance sensitivity is measured by both delta and Jensen-Murphy pay-performance sensitivity.FindingsWe find that an increase in CEO pay-performance sensitivity as measured by both delta and Jensen-Murphy pay-performance sensitivity leads to an increase in the degree of CEO pay for luck but tends to reduce the level of CEO pay for luck asymmetry. In addition, we find that the major pay-related regulatory changes in recent years have mitigated the degree of CEO pay for luck and pay asymmetry, in which CEO pay structure and the associated CEO pay-performance sensitivity are major mechanisms through which the regulatory changes take effect.Research limitations/implicationsOur findings provide empirical evidence supporting the argument that both optimal contracting and rent extraction should be considered as important determinants of CEO compensation.Practical implicationsWhen a firm designs the pay packages for its CEO to align CEO wealth to firm performance, CEO pay-performance sensitivity is expected to improve. However, the improved CEO PPS can also lead to an increased CEO pay for non-performance (Luck), which is an undesired outcome from the shareholder view. Therefore, a firm should thoroughly consider various advantages and disadvantages when compensating its top executives. Third, pay-related regulations have indeed achieved some intended outcomes such as the diminished pay for luck and asymmetry, but they also exacerbated the positive relationship between CEO pay-performance sensitivity and the asymmetric benchmarking of CEO pay. It seems that executive pay-related regulations cannot achieve perfect outcomes without side effects. Continuous reforms and regulations on corporate governance should be a dynamic process under various changing situations.Originality/valueThis study contributes to the literature on executive pay for luck and asymmetry in several ways. First, our study is among the few studies empirically testing the relationship between CEO pay-performance sensitivity and pay for luck and asymmetry. We find that CEO pay-performance sensitivity tends to increase the degree of CEO pay for luck but reduce the level of asymmetric benchmarking of CEO pay. These findings partly support the rent extraction theory grounded on the managerial power hypothesis and partly support the optimal contracting theory. Our findings confirm that the optimal contracting theory and the rent extraction theory are both important for explaining the practices and historical trends of CEO compensation.

Solving the single depot open close multiple travelling salesman problem through a multi-chromosome based genetic algorithm

The multiple travelling salesman problem (MTSP) extends the classical travelling salesman problem (TSP) by involving multiple salesman in the solution. MTSP has found widespread applications in various domains, such as transportation, robotics, and networking. Despite extensive research on MTSP and its variants, there has been limited attention given to the open close multiple travelling salesman problem (OCMTSP) and its variants in the literature. To the best of the author's knowledge, only one study has addressed OCMTSP, introducing an exact algorithm designed for optimal solutions. However, the efficiency of this existing algorithm diminishes for larger instances due to computational complexity. Therefore, there is a crucial need for a high-level metaheuristic to provide optimal/best solutions within a reasonable timeframe. Addressing this gap, this study proposes a first meta-heuristic called multi-chromosome-based Genetic Algorithm (GA) for solving OCMTSP. The effectiveness of the developed algorithm is demonstrated through a comparative study on distinct asymmetric benchmark instances sourced from the TSPLIB dataset. Additionally, results from comprehensive experiments conducted on 90 OCMTSP symmetric instances, generated from the renowned TSPLIB benchmark dataset, highlight the efficiency of the proposed GA in addressing the OCMTSP. Notably, the proposed multi-chromosome-based GA stands out as the top-performing approach in terms of overall performance. Further, solutions to symmetric TSPLIB benchmark instances are also reported, which will be used as a basis for future studies.

New formulations for the traveling repairman problem with time windows

The Traveling Repairman Problem (TRP) is one of the most important variants of the Traveling Salesman Problem (TSP). The objective function of TRP is to find a Hamiltonian path or tour starting from the origin while minimizing the total latency (waiting or delay time) for all customers. The latency of a customer is defined as the time passed from the beginning of a tour (or path) until a customer’s service is completed. TRP with time windows (TRPTW) is the case where the earliest and latest times for visiting each customer are restricted by prescribed time windows. The literature on TRPTW is scarce. We only found one formulation for TRPTW and one formulation for its variant. In this paper, we propose four new mathematical models for TRPTW with O(n2) binary variables and O(n2) constraints. We computationally analyze the performance of existing and new formulations by solving symmetric and asymmetric benchmark instances with CPLEX 12.5.0.1 and compare the results in terms of CPU times and optimality gap. We observed that our two formulations were extremely faster than existing formulations, and they could optimally solve symmetric instances up to 150 nodes and asymmetric instances up to 131 nodes within seconds.

Profit skimming, asymmetric benchmarking, or the effects of implicit incentives? Evidence from natural disasters

We evaluate competing hypotheses on profit skimming, asymmetric benchmarking, and the effects of implicit incentives using natural disasters as shocks to firm-specific performance. We find that compensation of both CEOs and other top executives are adjusted for exogenous changes in firm-specific performance. Moreover, the change in pay-for-performance sensitivity is greater for favorably rather than adversely affected firms. These results are stronger in firms with independent boards, new outside CEOs, and younger CEOs, where optimal contracting is more likely. Overall, our results support Feriozzi’s (2011) hypothesis that asymmetric pay-for-performance sensitivity can result from implicit incentives, which trigger after negative shocks.

Sensitivity analysis of FDA´s benchmark nozzle regarding in vitro imperfections - Do we need asymmetric CFD benchmarks?

Abstract Modern technologies and methods such as computer simulation, so-called in silico methods, foster the development of medical devices. For accelerating the uptake of computer simulations and to increase credibility and reliability the U.S. Food and Drug Administration organized an inter-laboratory round robin study of a generic nozzle geometry. In preparation of own bench testing experiment using Particle Image Velocimetry, a custom made silicone nozzle was manufactured. By using in silico computational fluid dynamics method the influence of in vitro imperfections, such as inflow variations and geometrical deviations, on the flow field were evaluated. Based on literature the throat Reynolds number was varied Rethroat = 500 ± 50. It could be shown that the flow field errors resulted from variations of inlet conditions can be largely eliminated by normalizing if the Reynolds number is known. Furthermore, a symmetric imperfection of the silicone model within manufacturing tolerance does not affect the flow as much as an asymmetric failure such as an unintended curvature of the nozzle. In brief, we can conclude that geometrical imperfection of the reference experiment should be considered accordingly to in silico modelling. The question arises, if an asymmetric benchmark for biofluid analysis needs to be established. An eccentric nozzle benchmark could be a suitable case and will be further investigated.

Efficient Chaotic Imperialist Competitive Algorithm with Dropout Strategy for Global Optimization

The imperialist competitive algorithm combined with chaos theory (CICA) demonstrates excellent performance in global optimization problems. However, its computational complexity increases with the introduction of chaotic maps. To address this, we integrate CICA with a dropout strategy that randomly samples the dimensions of each solution at each iteration of the computation. We investigate the potential of the proposed algorithm with different chaotic maps through six symmetric and six asymmetric benchmark functions. We also apply the proposed algorithm to AUVs’ path planning application showing its performance and effectiveness in solving real problems. The simulation results show that the proposed algorithm not only has low computational complexity but also enhances local search capability near the globally optimal solution with an insignificant loss in the success rate.

A Benchmarking Toolkit for Corporate Sustainable Development in Supply Chains

The objective is to describe and apply a benchmarking toolkit to prioritize managerial implications for the measurement and assessment of sustainable development in supply chains. A case study approach of a Scandinavian hotel chain, which is well-known for its dedication and commitment to the sustainable development of its business practices, is used. The outcome of a TBL dominant logic consisting of dimensions, indicators and items across economic, social and environmental aspects, which yields various benchmarking priorities of implications for supply chains is discussed. The priority of sustainable development in supply chains depends on the others involved who may have contradictory views on what to do and how to progress sustainable development. The assessment scheme reported stresses through an asymmetric benchmarking approach and interpretation, rather than a symmetric one, so as to deal effectively with the priority of managerial implications of corporate sustainable development in supply chains. Suggestion for futher research are provided. This study provides the foundation of a benchmarking toolkit for corporate sustainable development that offers relevant and valuable insights into the priority of managerial implications across economic, social and environmental aspects in connection with business sustainability in supply chains.

Agency Conflicts over the Short and Long Run: Short-Termism, Long-Termism, and Pay-For-Luck

We develop a dynamic agency model in which the agent controls current earnings via short-term effort and firm growth via long-term effort and the firm is subject to both short- and long-run shocks. Under the optimal contract, agency conflicts can induce both over- and underinvestment in short- and long-term efforts compared to first best, leading to short- or long-termism in corporate policies. Exposure to long-run shocks introduces pay-for-luck in incentive compensation but only after sufficiently good performance due to incentive compatibility, thereby rationalizing the asymmetric benchmarking observed in the data. Correlated short- and long-run shocks to earnings and firm size lead to externalities in incentive provision over different time horizons.

Asymmetric benchmarking of pay in firms

This paper examines whether asymmetric benchmarking of pay exists for vice presidents (VPs). Using ExecuComp data for 1992–2007, we find that companies reward VPs for good luck but do not penalize them for bad luck. However, asymmetric benchmarking of VP pay is mitigated by governance, CEO power, gender, and industry factors. The presence of asymmetric benchmarking of pay could suggest that managers are involved in skimming, or it could mean that firms insulate managers from poor firm performance to prevent them from accessing outside opportunities. We find that unlike CEOs, asymmetric benchmarking of pay for VPs is not consistent with the skimming hypothesis.

Asymmetric Benchmarking in Bank Credit Rating

This study proposes an information asymmetry hypothesis to examine why bank credit ratings vary among countries even when bank financial ratios remain constant. Countries are divided among those with low and high information asymmetry. The former include high-income countries, those in North America and West Europe regions, and those with strong institutional environment quality, whereas the latter group possess the opposite characteristics. This study hypothesizes that the influences of financial ratios on ratings are enhanced in low information asymmetry countries but reduced in countries with high information asymmetry. The sample includes the long-term credit ratings issued by Standard and Poor’s from 86 countries during 2002–2008. The estimated results show that the effects of financial ratios on ratings are significantly affected by information asymmetries. Countries wishing to improve the credit ratings of their banks thus should reduce information asymmetry.

Asymmetric benchmarking in bank credit rating

This study proposes an information asymmetry hypothesis to examine why bank credit ratings vary among countries even when bank financial ratios remain constant. Countries are divided among those with low and high information asymmetry. The former include high-income countries, those in North America and West Europe regions, and those with strong institutional environment quality, whereas the latter group possess the opposite characteristics. This study hypothesizes that the influences of financial ratios on ratings are enhanced in low information asymmetry countries but reduced in countries with high information asymmetry. The sample includes the long-term credit ratings issued by Standard and Poor's from 86 countries during 2002–2008. The estimated results show that the effects of financial ratios on ratings are significantly affected by information asymmetries. Countries wishing to improve the credit ratings of their banks thus should reduce information asymmetry.

The Bright Side of Asymmetric Benchmarking: Evidence from Top Management Team Pay

CEOs and top management team members have incentives to influence their own pay. Asymmetric benchmarking of pay for CEOs has been linked to the CEO's control over the pay-setting process in previous research. This paper examines whether asymmetric benchmarking of pay exists for top management team members. The presence of asymmetric benchmarking of pay could on one hand suggest that managers are involved in skimming and on the other hand it could mean that firms insulate managers to prevent them from accessing outside opportunities. Using ExecuComp firms from 1992-2007, we find that top management team members are rewarded for good luck but they are not penalized bad luck. Unlike CEOs, asymmetric benchmarking of pay for top management team members is consistent with the retention hypothesis rather than skimming. In particular, we find that asymmetric benchmarking of pay for top management team members has a positive relationship with firm value.

Synthesis and catalytic application of novel binaphthyl-derived phosphorous ligands

We describe our recent achievements in the synthesis of chiral phosphorous ligands and their application in catalytic asymmetric hydrogenation reactions. Special attention is given to the development of novel binaphthophosphepine ligands. Starting from enantiomerically pure 1,1’binaphthol or 2,2’-dimethyl-1,1’-binaphthyl and the building blocks A or B, new chelating Pligands have been synthesized in one step in good to excellent yields (68–95%). The resulting chiral bidentate phosphines, phosphites and phosphonites were tested in various asymmetric hydrogenation benchmark reactions. Interestingly, small structural changes within the ligands exhibit a significant influence on the enantioselectivity of the hydrogenation reactions.

CEOs' Outside Employment Opportunities and the Lack of Relative Performance Evaluation in Compensation Contracts

ABSTRACTAlthough agency theory suggests that firms should index executive compensation to remove market‐wide effects (i.e., RPE), there is little evidence to support this theory. Oyer (2004, Journal of Finance 59, 1619–1649) posits that an absence of RPE is optimal if the CEO's reservation wages from outside employment opportunities vary with the economy's fortunes. We directly test and find support for Oyer's (2004) theory. We argue that the CEO's outside opportunities depend on his talent, as proxied by the CEO's financial press visibility and his firm's industry‐adjusted ROA. Our results are robust to alternate explanations such as managerial skimming, oligopoly, and asymmetric benchmarking.

Asymmetric benchmarking in compensation: Executives are rewarded for good luck but not penalized for bad

Principal-agent theory suggests that a manager should be paid relative to a benchmark that removes the effect of market or sector performance on the firm's own performance. Recently, it has been argued that such indexation is not observed in the data because executives can set pay in their own interests; that is, they can enjoy “pay for luck” as well as “pay for performance.” We first show that this argument is incomplete. The positive expected return on stock markets reflects compensation for bearing systematic risk. If executives’ pay is tied to market movements, they can only expect to receive the market-determined return for risk-bearing. This argument, however, assumes that executive pay is tied to bad luck as well as to good luck. If executives can truly influence the setting of their pay, they will seek to have their performance benchmarked only when it is in their interest, namely, when the benchmark has fallen. Using industry benchmarks, we find significantly less pay for luck when luck is down (in which case, pay for luck would reduce compensation) than when it is up. These empirical results are robust to a variety of alternative hypotheses and robustness checks, and they suggest that the average executive loses 25–45% less pay from bad luck than is gained from good luck.

CEOs' Outside Employment Opportunities and the Lack of Relative Performance Evaluation in Compensation Contracts

Although agency theory suggests that firms ought to index executive compensation to remove market-wide effects (i.e., RPE), there is little evidence to support this theory. Oyer (2004) posits that absence of RPE is optimal if the CEO's reservation wages from outside employment opportunities rise and fall with the economy's fortunes. We directly test and find support for Oyer's (2004) theory. We argue that the CEO's outside opportunities depend on his talent proxied by the CEO's financial press visibility and his firm's recent industry-adjusted ROA. Our results are robust to alternate explanations such as managerial skimming, oligopoly and asymmetric benchmarking.

Asymmetric Benchmarking in Compensation: Executives are Paid for (Good) Luck But Not Punished for Bad

Principal-agent theory suggests that a manager should be paid relative to a benchmark that removes the effect of market or sector performance on the firm's own Recently, it has been argued that we do not observe such indexation in the data because executives can set in their own interests, that is, they can enjoy pay for as well as pay for performance. We first show that this argument is incomplete. The positive expected return on stock markets reflects compensation for bearing systematic risk. If executives' is tied to market movements, they can only expect to receive the market-determined return for risk-bearing. This argument, however, assumes that executive is tied to bad luck as well as to good luck. If executives can truly influence the setting of their pay, they will seek to have their performance benchmarked only when it is in their interest, namely when the benchmark has fallen. Using industry benchmarks, we find that there is significantly less pay-for-luck when luck is down (in which case pay-for-luck would reduce compensation) than when it is up. These empirical results are robust to a variety of alternative hypotheses and robustness checks, and suggest that the average executive loses 25% less from bad luck than she gains from good luck.