CEO Compensation Research Articles

Who affects CEO compensation? Firm performance, ownership structure, and board diversity

This paper examines the relation among firm performance, ownership structure, and board gender diversity on the firm board and CEO compensation, i.e., total compensation, salary-based compensation, and bonus-based compensation. The paper employs a unique dataset from S&P 1500 firms from 2007 to 2018. The empirical results suggest that large and diversified boards are the main determinants of CEO compensation, in line with the theory. Moreover, longer-tenured CEOs who also hold the board chairperson position receive greater compensation and bonuses than their peers. In addition, a firm financial performance affects CEO compensation, with the influence being more pronounced in the CEO's total compensation. This paper adds to the existing literature on CEO compensation, corporate governance, and board attributes, especially when revealing empirical support for the link between board diversity and CEO compensation against a strong demand for sound corporate governance practices.

The Effect of CFO Characteristics on the Quality of Real Surplus: A Case Study of the Chinese Real Estate Industry

The article selects the data on the characteristics of finance chief executive officers of real estate listed companies from 2018 to 2022 as a research sample and explores the relationship between the heterogeneous characteristics of finance executives and concurrent positions and real surplus management from five perspectives: gender, age, tenure, educational background, salary and compensation of finance chief executive officers. The study shows that: in the real estate industry, gender, salary, and compensation of financial CEOs are not related to surplus management; age is significantly positively related to surplus management in the case of concurrent directorship and significantly negatively related in the case of non-concurrent directorship; tenure of financial CEOs is significantly negatively related to surplus management in the case of non-concurrent directorship; and educational background of financial CEOs is significantly positively related to surplus management in the case of non-concurrent directorship.

Passive Institutions and Long-Run CEO Compensation: Evidence from Proxy Voting

A one-standard-deviation increase in passive ownership leads to a 25% increase in the compensation duration. I find proxy voting is the channel through which passive investors affect incentive horizons. Since the passage of the Dodd-Frank Act, passive funds tend to vote more against Say-on-Pay (SOP) proposals, and SOP proposals are less likely to pass with higher passive ownership. Moreover, passive ownership is associated with a greater number of shareholder-sponsored compensation proposals and an increased likelihood of these proposals passing. The overall findings indicate that passive institutions work to lengthen CEO compensation to align incentive horizons, and proxy voting is the mechanism through which they exert influence.

Complexity of CEO compensation packages

This paper examines complexity in CEO compensation contracts. We develop a measure of compensation complexity and provide empirical evidence that complexity has increased substantially over time. We document that complexity results not only from factors reflecting efficient contracting, but also from external pressures from compensation consultants, institutional investors, proxy advisors, and attempts to benchmark to peers, with these external factors having greater impact in more recent years. Examining consequences of contract complexity, we find an association with lower future firm performance that is related to the influence of external factors on compensation design. We further find this relation is partially mitigated when a contract's performance metrics are more highly correlated, consistent with information processing costs hampering decision-making. Collectively, these findings confirm concerns raised by investors and the media regarding compensation complexity and can inform boards in their design of CEO pay packages.

CEO POWER, CEO PAY STICKINESS AND R&D INVESTMENT

An innovation-driven development strategy is essential for achieving high-quality national economic development. As an important manager in the core position of the top management, I play a key role in improving the efficiency of innovation investment decision-making. Based on data from A-share listed companies in China from 2008 to 2021, this paper employs fixed effects multiple regression analysis to examine the impact of CEO power on R&D investment and its mechanisms. The results show that CEO power can promote R&D investment indirectly; that is, CEO power promotes higher CEO pay stickiness first and then produces higher R&D investment. The results of this study can provide references for enterprises to reasonably set up CEO power, improve governance systems, optimize CEO compensation incentive mechanisms, and stimulate CEO R&D innovation activities.

CEO compensation: US college student and adult perceptions

Purpose This study aims to understand differences in perceptions of CEO compensation between working adults and business students in the USA before and after reading CEO pay information. Design/methodology/approach Participants completed a survey about their perceptions of chief executive officer (CEO) compensation before and after reading CEO compensation information that included the median CEO-to-employee ratio and salary in 2021. Findings Working adults and business students had similar levels of concern about CEO compensation. Participants were more concerned with CEO compensation after reading information about CEO pay but also believed CEO pay was more justified, contrary to equity theory (Adams, 1965). Among the student and adult samples, women and noninvestors were more likely to have concerns about CEO compensation than other participants. Practical implications Individuals may not understand the components of CEO compensation, and the size of CEO salaries may be difficult to comprehend. Educators and the media should consider presenting CEO compensation information in a different way, for example, how long it takes a CEO to earn as much as an average employee does annually, for the public to understand how much more CEOs are paid than their employees. Originality/value Little research exists on CEO compensation understanding and concerns. This research opens the opportunity for future studies on CEO compensation, for example, that consider variables other than CEO pay (e.g. equity and other forms of compensation) and what individuals believe CEOs do that justifies their high compensation.

Co‐opted Independent Directors and Firms' Environmental Performance

ABSTRACTResearch Question/IssueConsidering escalating environmental concerns and the important role of board members in shaping strategic corporate decisions, we investigate the relationship between co‐opted independent directors and firms' environmental performance.Research Findings/InsightsExamining US firms from 2002 to 2018, we document a significant negative relationship between co‐opted independent directors and firm environmental performance. Our findings show that while institutional ownership and CEO power exacerbate the negative association, strong corporate governance mitigates this negative impact of co‐opted independent directors on environmental performance. The cross‐sectional results show that the relationship is pronounced in firms with young CEOs, male CEOs, and low CEO compensation. Further, the relationship is also prevalent in boards with fewer meetings, high multiple directors, and higher compensation, indicating a monitoring compromise by independent co‐opted directors.Theoretical/Academic ImplicationsReasonable theoretical arguments are drawn from agency theory and the theory of friendly boards, and our statistical analysis supports the academic position of the theory of friendly boards. The negative effect of independent co‐opted directors on firm environmental performance challenges the role of independent directors in addressing agency issues in environmental efforts, hinting at a departure from conventional agency theory expectations.Practitioner/Policy ImplicationsTo improve environmental performance, firms should reconsider their board structures, acknowledging the potential drawbacks of co‐opted independent directors. Our findings challenge the Sarbanes–Oxley Act's (SOX) emphasis on increasing the number of outside directors, which assumes independent board members will rigorously oversee executives. Such legislation is greatly based on the premise that independent board members strictly monitor executives. However, our findings indicate that not all independent directors are strict monitors, as demonstrated by lower environmental performance when there are more co‐opted independent directors.

Media and social media sentiment and CEO pay cuts

PurposeThis study investigates the relationship between media and social media sentiment and the likelihood of CEO pay cuts. The purpose is to examine whether and how these pay cuts influence market reactions. The study aims to provide insights into how external sentiment affects corporate decision-making and market perceptions, particularly in the context of CEO compensation.Design/methodology/approachUsing a sample of 6,331 firm-year observations from 2015 to 2021, this paper employs quantitative analysis to assess the association between media and social media sentiment and CEO pay cuts. We utilise company DEF14A SEC filings to identify CEO pay cut dates and capture traditional media and Twitter sentiment 30-days prior to these filing dates.FindingsWe find a negative association between media and social media sentiment and CEO pay cuts, indicating that firms facing more negative sentiment are more likely to engage in pay cuts. We find evidence that CEO pay cuts are negatively correlated with market reactions, suggesting markets generally do not seem to favour decisions to cut CEO pay. This relationship, however, is complex and influenced by multiple factors, including the nature of sentiment and the specific components of CEO compensation.Research limitations/implicationsThe study faces limitations in identifying the varying degrees of pay cuts and their motivations. Additionally, the content of news articles and Twitter posts used to measure sentiment was not specifically identified, which may affect the accuracy of sentiment measurement.Practical implicationsThis research offers valuable insights for managers and corporate decision-makers, highlighting the potential impact of public sentiment on critical executive compensation decisions.Social implicationsThe study underscores the influence of media and social media in shaping public opinion and driving corporate actions, highlighting the growing intersection between social perceptions and corporate governance. This has broader implications for how firms engage with media platforms and manage their public image, particularly in the realm of executive compensation.Originality/valueWe are the first to study the impact of media and social media sentiment on CEO compensation decisions and market reactions. By employing DEF14A filings as event dates for market reaction studies, we offer a novel approach to analysing the impact of executive compensation changes on market behaviour.

CEO industry tournament, investor attention, and company value

AbstractBased on the emerging capital market of China, this paper uses the data of Chinese listed companies to test the market value management behavior of CEOs under the incentive of industry tournaments. The empirical results show that the CEOs industry tournament improves the value of listed companies by attracting investor attention. In the test of the incentive mechanism of the industry tournament, we find that in the samples with lower industry mobility and state ownership and where the CEO is new, retiring, or a founder, the industry pay gap has a weaker incentive effect on the CEO. In the test of the CEOs' efforts to manage investor attention, this paper finds that CEOs are incentivized to disclose more financial and nonfinancial information, increase advertising spending, and hold more shareholder meetings. Discussed with other incentives, compensation incentives and equity incentives enhance the motivational role of industry championships for CEOs. This study explores in depth the possible impact of industry tournaments on CEO behavioral decisions and also provides a new perspective for corporate to manage investor attention. This provides important reference value for corporate CEO compensation, information disclosure supervision, and investor decision‐making.

Managerial activism

We examine managerial activism through collective action in the corporate sector. Activist managers spend considerable resources in pursuing pro-business and pro-manager issues. While managerial activism is valuable in the pursuit of pro-business strategies, pro-manager agendas may exacerbate agency problems. Our evidence shows that firm performance improves with managerial activism through collective pro-business effort but is diminished by pro-manager activism. Furthermore, pro-business activism typically increases CEO compensation, whereas pro-manager activism decreases it. Firms that benefit most from collective managerial activism are those that are government dependent, have more intangible assets, or operate in industries with low competition. Overall, pro-business managerial activism adds value to firms, especially when information dissemination is more essential due to firm characteristics.

The Boundary Conditions of Optimal Contracting and Managerial Entrenchment: A Simultaneous Two-Equation Vector Autoregression with Exogenous Variables Approach for Chief Executive Officer Compensation and Firm Performance

We apply the vector autoregression with exogenous variables (VARX) approach to integrate the optimal contracting theory, the managerial entrenchment theory, the principal-agent theory, the contextual criteria theory, and the upper echelon theory. Based on this new approach, we discover two middle ground conditions between the boundary of managerial entrenchment and optimal contracting, where CEO non-entrenchment or entrenchment cannot be explained by the managerial entrenchment theory or optimal contracting theory alone. For example, some CEOs are not entrenched when the agency problem is not mitigated, while others are entrenched when the agency problem is mitigated. The results imply that merely mitigating the agency problem cannot prevent managerial entrenchment. However, not mitigating the agency problem at all leads to managerial entrenchment. We recommend the boards look at other non-financial means and social approaches (e.g., value- and culture-based trainings, performance recognition, goodwill and friendship building events, pay transparency increase, smooth flow of information among stakeholders, value-adding managerial investments, oversight committee) to minimize the impact of managerial entrenchment on both firm performance and CEO compensation. In addition, we recommend the boards take on the approaches unique to their own firms and their CEOs to address managerial entrenchment.

Do CSR Firms Make Better Acquisitions? - The Case of Taiwan

This study examines the association between Corporate Social Responsibility (CSR) activities measured by two of Taiwan’s leading publishers, the Commonwealth Magazine and the Global View Magazine, and the acquirer’s short- and long-term performances after the merger announcement in Taiwan. We use CEO compensation and the firm’s free cash flow as the proxies for CEO self-confidence. We find that the acquirer’s CSR engagement is positively associated with its long-term performance but not with its short-term performance. CEO compensation is positively associated with the acquirer’s performance, especially after the mandatory establishment of the remuneration committee for publicly traded firms. However, the acquirer’s free cash flow is found negatively associated with its performance, supporting Jensen’s (Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76, 323–329) free cash flow hypothesis or CEO hubris. These findings indicate that the CSR measurements of Commonwealth Magazine and Global View Magazine do provide valuable information for CSR activities and that CSR activities do enhance firm value in the long run. Furthermore, the requirement for the establishment of the remuneration committee does improve the effectiveness of CEO compensation for firm performance in Taiwan.

Blockholder rent appropriation and CEO compensation in an emerging economy: an examination of three types of blockholder–CEO relationships

Blockholder rent appropriation and CEO compensation in an emerging economy: an examination of three types of blockholder–CEO relationships

Are Companies Offloading Risk onto Employees in Times of Uncertainty? Insights from Corporate Pension Plans

AbstractWe investigate how firms adjust corporate pension plans in response to economic policy uncertainty (EPU). Using a sample of US-listed firms, we find that firms increase pension underfunding levels when facing higher EPU. The result is robust to controlling for pension portfolio returns, discount rates, plan sizes, pension liability, numbers of employees, other macroeconomic factors, difference-in-differences and instrumental variable estimation, and additional evidence of pension risk-shifting. Further analysis reveals that financial distress and information asymmetry induced through EPU are the potential channels. The effect is stronger for firms having CEOs being excessively paid, using cash flow as a performance metric in CEO compensation, paying high dividends, and having short-term institutional investors, whereas the presence of unions, positive corporate culture, and social capital alleviate the effect. Notably, managers, not shareholders, appear to be the party reaping the benefits. Our findings suggest that firms may shift risk to employees in response to heightened uncertainty and institutional characteristics play a moderating role in this crucial business ethics issue.

Impact of corporate governance on corporate environmental performance: Does Green Finance matter?

This study investigates the impact of corporate governance on Corporate Environmental Performance (CEP) in manufacturing firms listed on the Pakistan Stock Exchange from 2013 to 2019, with a particular focus on the role of green finance. Using a sample of 308 conventional manufacturing firms, approximately 75% of the sector's total population, the study applies Fixed Effects and Generalized Method of Moments (GMM) estimation techniques to assess the data. The results reveal that while Audit Committee Independence significantly enhances CEP, Audit Committee Size has minimal impact. CEO Compensation positively influences sustainability efforts, whereas Director Compensation is negatively associated with CEP, indicating a potential misalignment with environmental objectives. Ownership structure analysis shows positive effects of Institutional and Foreign Ownership on CEP, while Family, Insider, and Block Ownership negatively affect environmental outcomes. The findings underscore the importance of integrating green finance and carbon accounting into governance frameworks to enhance sustainability initiatives. This integration aligns with Sustainable Development Goals (SDGs) 12 (Responsible Consumption and Production), 13 (Climate Action), and 17 (Partnerships for the Goals). The study’s findings have important implications for policymakers and corporate stakeholders, advocating for governance strategies that balance financial and environmental performance, and fostering independent oversight for improved environmental sustainability.

CEO compensation convexity and meeting‐or‐just‐beat earnings forecast

AbstractA line of research documents that corporate executives' compensation convexity relates to earnings management, the issuance of management earnings forecasts and firms' investing and financing decisions. Another stream of research demonstrates that executives manage earnings expectations downward to beatable levels. We bridge these lines of research by investigating how CEO compensation convexity affects expectation management, an important earnings reporting strategy. We hypothesise and find that compensation convexity plays an important role in inducing CEOs to adopt a meet‐or‐just‐beat earnings reporting strategy, which is implemented by downward expectation management.

CSR performance of dual-class firms in different life cycle stages

ABSTRACT This paper investigates the relationship between corporate social responsibility (CSR) performance and different phases within a firm’s life cycle. Drawing on a sample of U.S. public firms spanning the period from 1991 to 2018, our empirical findings reveal distinct patterns: Younger firms with dual-class equity structures tend to allocate fewer resources to CSR initiatives compared to their single-class counterparts. However, as firms progress into the mature phase of their life cycle, dual-class firms exhibit superior CSR performance compared to single-class firms. Furthermore, we also observe that CEO compensation in dual-class firms tends to be higher during the mature phase. Those findings make a substantial contribution to the fields of agency theory, corporate governance, and business ethics.

DETERMINASI FAKTOR-FAKTOR ARROGANCE SEBAGAI PERSPEKTIF FRAUD PENTAGON TERHADAP KECURANGAN LAPORAN KEUANGAN

Financial statement fraud is the misstatement or omission of amounts or deliberate disclosure with the intent of deceiving users of financial statements. Pentagon fraud is the factors that cause fraud through five elements: pressure, opportunity, rationalization, competence and arrogance. Arrogance is an attitude of arrogance that exists in a human being so that he considers that he is capable of cheating. This study was conducted to identify whether arrogance factors namely CEO Compensation, CEO Exposure and CEO Power have an effect on financial statement fraud. This research uses secondary data on the annual financial statements of manufacturing sector companies listed on the Indonesia Stock Exchange for 2017-2021. This research is quantitative with data collection techniques using purposive sampling with a total sample of 77 companies. The logistic regression research method is processed with Eviews 12 software. The results of this study show that CEO Power proxied with duality and CEO Exposure proxied with Photograph in Annual Report negatively affect financial statement fraud in manufacturing sector companies listed on the Indonesia Stock Exchange in 2017-2021.

경영자 능력과 상대적 성과평가의 비교기업 선정

The purpose of this study is to find out whether companies consider CEO ability to choose peer groups in relative performance evaluation. For empirical analysis, this study used US listed companies, and the primary empirical results are as follows. First, the performance of peers is significantly related with CEO compensation scheme when peers are selected by reflecting the similarity of CEO ability between companies within the same industry. Second, the performance of peer companies significantly affects CEO performance evaluation when peers are chosen by taking into account the similarity of the industry, firm size, and CEO ability. These results imply that firms consider similarity of CEO ability in peer group as well as common risk factors of peers to increase the usefulness of relative performance evaluation. This study enhances the understanding of the relative performance evaluation in CEO compensation by finding that CEO ability can be reflected as a selection criterion for peer companies in relative performance evaluation.

The ‘S’ in ESG and its moderating role in determining the performance-based CEO compensation

The ‘S’ in ESG and its moderating role in determining the performance-based CEO compensation