Chief Executive Officer Compensation Research Articles

ALWAYS DESIRE MORE? CEO PERCEPTIONS OF RELATIVE COMPENSATION, RISK PROPENSITY, AND INNOVATION IN SMEs

We study how the chief executive officers (CEOs) compensation perceptions and risk propensity influence exploratory innovation in small- and medium-sized enterprises (SMEs). Based on survey data collected from 381 CEOs of private SMEs in Colombia, we find that (1) CEO underpayment perceptions have a positively increasing relationship with exploratory innovation, (2) CEO overpayment perceptions have a positively decreasing relationship with exploratory innovation, and (3) CEOs’ risk propensity does not moderate these relationships. Our study informs small business managers, boards of directors, and policy makers on how compensation aspirations and comparisons serve as motives for exploratory behaviour. Our study also represents a unique attempt to capture CEOs’ perceptions of their compensation and explore their influence on strategic outcomes. Further, we underscore the need to extend social comparison theories to better understand how CEOs’ compensation and dispositional motives shape firms.

How Much Does Nonprofit Board Governance Matter? Role of Interlocking Directorates, Executive Power, and Women on Boards in Executive Compensation

This article develops an executive compensation model focusing on board governance structure in nonprofit organizations. Drawn from a panel of nonprofits in three Upstate New York cities from 1998 to 2014, the analysis shows that chief executive officers (CEOs) compensation is positively associated with interlocking directorships of CEOs and boards of directors. The results reveal that the executives enjoy more compensation when they serve on the boards of other nonprofit organizations, hold more power in a leadership position with CEO duality and longer tenure, and when the organizations are led by busy boards where a majority of members in the boardroom sit on the boards of multiple other nonprofits. The analysis further shows that financial rewards offered to the executives are contingent upon women’s representation in the boardroom. These findings suggest board governance composition plays a critical role in executive compensation. Implications for practice and future research are discussed.

Governance mechanisms, firm performance and CEO compensation: evidence from Jordan

Purpose This paper aims to investigate the effect of governance mechanisms and firm performance on chief executive officer (CEO) compensation in relation to the Jordanian business environment. This study also examines the moderating role of gender diversity. Design/methodology/approach The sample is drawn from the annual reports of 68 Jordanian firms between 2015 and 2019. This paper uses the ordinary least square regression. It also uses the generalised method of moments approach to control any endogeneity issue and analyses the data in depth. In addition, it uses a dynamic model to address concerns regarding causality in the study’s models. Findings The results show that governance mechanisms and firm performance have an impact on CEO compensation. Furthermore, the outcomes indicate that gender diversity significantly and positively moderates the association between firm performance and CEO compensation. These findings enhance and support agency theory in the context of Jordan. Practical implications The study’s results have significant implications for policymakers, shareholders, investors, academicians and the public in the developing Jordanian market. The findings also support more monitoring and inspection to prevent the occurrence of opportunistic management behaviour and ensure that CEO remuneration packages are appropriately designed. Originality/value This study provides a unique understanding by explaining the impact of governance and performance on CEO compensation in a developing country such as Jordan. Besides that, the current study extends prior studies in Jordan significantly.

Do financial constraints affect the CEO stock options remuneration? Evidence from a panel threshold model

PurposeThe purpose of this study is to examine the nonlinear relationship between financial constraints and the chief executive officer (CEO) stock options compensation and to analyze whether the impact of financial constraints on the CEO stock options compensation changes at certain level of financial constraints or not.Design/methodology/approachThis study is based on a sample of 90 French firms for the period extending from 2008 to 2019. To deal with the non-linearity, the authors use a panel threshold method.FindingsUsing different measures of financial constraints [KZ index (Baker et al., 2003), SA index (Hadlock and Pierce, 2010) and FCP index (Schauer et al., 2019)], the results reveal that the impact of the financial constraints (SA index and FCP index) is positive below the threshold value and it becomes negative above.Research limitations/implicationsThe non-linearity between financial constraints and CEO stock options shows that the level of financial constraints can be a major determinant of the CEO compensation structure. More specifically, this study sheds light on the key role played by the level of financial constraints and how this latter influence management decisions.Originality/valueThis paper is the first to the best of the authors' knowledge to examine the nonlinear relationship between financial constraints and the CEO stock options compensation using a panel threshold model.

The impact of accounting comparability on CEO incentive plans in an emerging economy: the moderating role of board independence

PurposeThe present study investigates the impact of accounting comparability on chief executive officer (CEO) incentive plans and the moderating role of board independence for companies listed in Tehran Stock Exchange (TSE).Design/methodology/approachThe information about 177 companies in 2014–2021 was examined. In this study, equity-based compensation and cash-based compensation were used as the CEO incentive plans. The equity-based compensation was calculated through the ownership of the CEO shares.FindingsThe results suggest that the higher accounting comparability increases not only CEO equity-based compensation, but also cash-based compensation. Board independence also strengthens the relationship between accounting comparability and CEO compensation. Hypothesis testing based on robustness checks confirmed these results.Originality/valueThe paper is pioneering, to the authors' knowledge, in identifying how board independence moderates the impact of accounting comparability on CEO compensation. The findings provide insights into economic consequences to the firm related to accounting comparability and board monitoring. The results have important practical implications for international investors to evaluate accounting comparability, corporate governance mechanisms and CEO incentives.

Corporate Governance Disclosure Attributes and Organisational Performance in Sub-Sahara Africa

Purpose of the article: There seems to be lack of studies on the link between corporate governance disclosure attributes and organisational performance, particularly for consumer and industrial goods companies in sub-Sahara Africa in a single study. Consequently, this study was carried out with the view to evaluating whether certain corporate governance disclosure attributes (chief executive officer compensation and share ownership) affect organisational performance (return on capital employed) in sub-Sahara Africa.Methodology/Methods: Secondary data from 2012–2021 were obtained from the annual reports and accounts of sixteen (16) companies, of which four (4) were selected from each region of sub-Saharan Africa (West Africa: Nigeria; Southern African: South Africa, East Africa: Kenya; and Central Africa: Egypt). Data obtained were analysed via descriptive (mean, median, standard deviation, minimum and maximum values, kurtosis, skewness and Karl Pearson correlation matrix), post estimation (factor and principal component analyses, variance inflation factor and heteroscedasticity) and inferential (Ordinary Least Square, Fixed and Random Effects Regression) statistical tools.Scientific aim: This paper assessed corporate governance disclosure attributes and organisational performance in sub-Sahara Africa.Findings: The fixed and random regression result indicated that while chief executive officer compensation had significant relationship with organisational performance (coefficient = –1.1971; z_value = –3.40 and prob_z = 0.001), chief executive officer share ownership (coefficient = 0.00087, z_value = 0.04 and prob_z = 0.082) had insignificant relationship with organisational performance in sub-Saharan Africa.Conclusion: The study advocates the need to decrease chief executive officer share ownership concentration, as it may probably reduce decision-making process, transparency and objectivity of the board. Thus, concentration of chief executive officer sharehodling should be taken seriously by top management in that chief executive officers should not be accorded too much opportunity to aquire companies’ stocks.

Impact of Firm Performance and CEO Compensation with Moderating Role of Board Characteristics and Audit Quality

The motive behind conducting this study is to investigate the effect of the agency theory on Chief Executive Officer (CEO) Compensation through alignment among firm performance and CEO compensation. The moderating variables like Board characteristics (Board independence, Board gender diversification) and Audit quality have some connection between firm performance and CEOs compensation. The data for the period 2013 to 2017 is collected from 100 non-financial firms registered at the stock exchange of Pakistan. Empirical evidence show that firm performance is positively connected with CEO compensation which is close to the agency theory's pay-performance correlation plan. The results demonstrate that independent directors on board insignificantly affect the alignment among firm performance and CEO compensation in Pakistan. The Board gender diversity has an insignificant effect on the alignment among firm performance and CEO compensation. In contrast, audit quality positively affects the alignment among firm performance and CEO compensation. Since a higher quality audit gives the organization a realistic view. The control variable results also purported that financial leverage and firm age have no influence on the CEOs compensation but firm size has positive effect on CEOs compensation. This study contributes in future research on the Agency theory and pay related performance contribution.

CEO compensation and money laundering risk

This paper investigates the connection between money laundering risk and Chief Executive Officer (CEO) compensation in the Iranian stock market. For this goal, we construct a firm-level measure of money laundering risk using the opinion of certified auditors. Our findings documented a positive relationship between CEO compensation and money laundering risk. Furthermore, our results suggest that firms’ characteristics like size and independence of the firms' board can reduce the risk of money laundering.

The effect of contractual and behavioral CEO attributes on aggressive tax avoidance: case of German-listed firms in HDAX

Purpose This paper aims to examine the effect of contractual factors and noncontractual factors on tax avoidance (TA). Design/methodology/approach The sample comprises 400 firm-year observations of 67 companies listed on the HDAX during the period 2008–2017. The generalized least square panel regression is applied. Findings The study results confirm a significant effect of long-term chief executive officer (CEO) compensation incentives and CEO attributes on TA. Findings exhibit a significant impact of foreign CEO on TA, whereas an insider CEO mitigates TA. The results hold for several robustness tests, with lag effective tax rate as dependent variable and with splitting foreign CEO into European and non-European origin. Research limitations/implications First, the sample is limited to 400 firm-year observations and to the German context. For shareholders, the study provides first evidence on relationships between the geographical and internal versus external labor market for CEOs and TA. For researchers, the findings underline the importance of integrating behavioral approaches like place attachment theory and the rooting theory in the theory of TA. Originality/value To the best of the authors’ knowledge, this is the first study to examine the impact of both contractual determinants and behavioral determinants on TA in the German context as an emerged economy with a dualistic corporate governance. This study contributes to the existing literature regarding the scientific debates about the impact of CEOs and CEO attributes on TA. It also analyses the balance between the place attachment theory and the rooting theory in the face of the compensation outcomes of agency theory.

Gender differences in CEO risk tolerance: A look at fixed pay

The number of female Chief Executive Officers (CEOs) in the United States has increased significantly over the past two decades. Using a sample that includes this greater representation of female CEOs, we revisit whether CEO compensation packages reflect the standard agency theoretical prediction that CEOs who are more (less) risk-averse should be incentivized to take on greater (less) risk. Our findings are at odds with these predictions, as we provide evidence that the well-documented gender difference in risk tolerance among CEOs is reflected in their compensation packages. While total CEO compensation is roughly equal between men and women, female CEOs earn significantly higher salaries, especially at larger firms.

When CEO Pay Becomes a Brand Problem.

For over four decades, the topic of Chief Executive Officer (CEO) compensation has attracted considerable attention from the fields of economics, finance, management, public policy, law, and business ethics. As scholarly interest in CEO pay has increased, so has public concern about the ethics of high CEO pay. Despite growing interest and pressure among the public and government to reduce CEO pay, it has continued to increase. Using a multi-method design incorporating a pilot study, two online experiments, and an event study, we investigate the impact of CEO pay on consumer purchase intent and find that this negative relationship is magnified under conditions of brand crisis. We also find that the negative interaction of high CEO pay and brand crisis on purchase intent is more negative when the brand has strong equity. Finally, when the CEO is awarded high pay while the firm they manage is undergoing a brand crisis, consumers lose trust in the firm's brand which reduces consumer purchase intent. This research provides insight on how governance decisions can impact consumer perceptions of corporate brands and consumer behavior, with implications for public policy leaders, boards of directors, CEOs, and Chief Marketing Officers regarding how to manage and message CEO pay.

Board Gender Diversity and Nonprofit CEO Compensation: Implications for Gender Pay Gap

This study examines how gender diversity on nonprofit boards relates to chief executive officer (CEO) compensation using data of 1,835 501(c)(3) organizations with the GuideStar Platinum Seal of Transparency. The analysis reveals a positive association between women’s representation on a governing board and female CEO compensation until women’s proportion reaches 82%. By contrast, there is a negative relationship between women’s representation on boards and male CEO compensation. Overall, the findings suggest that board gender diversity has distinctive implications for CEO compensation depending on CEO gender and that having more women on governing boards contributes to closing the gender pay gap for nonprofit executives. These findings can be applied to other dimensions of diversity, including racial and ethnic diversity.

Remuneration committees, CEO compensation, skills and retention

PurposeThe purpose of this study is threefold: to examine the impact of a remuneration committee (RC) on the level of chief executive officer (CEO) remuneration; whether firms with a RC, pay a premium to CEOs with different skill sets (general or specific); and whether a pay premium mitigates the potential for CEO turnover.Design/methodology/approachThis study uses a sample of 5,305 firm-year observations on a data set drawn from companies listed on the Australian Securities Exchange for the period 2007 to 2014. The authors use ordinary least squares as well as logit regression techniques to test the formulated hypotheses. Difference in difference and propensity score matching techniques were undertaken to address the endogeneity concerns.FindingsThe findings show that firms with a RC pay a higher total remuneration to CEOs compared to firms without a RC. Furthermore, firms with a RC, value and reward CEOs with general skills by paying a premium not offered to CEOs with industry-specific skills. Paying a premium, in turn, mitigates CEO turnover by strengthening the CEO’s commitment to the organisation.Originality/valueThe study helps us to understand the critical role played by the RC in the remuneration of CEOs. The findings show that RCs act as an effective governance mechanism to deal with issues of executive remuneration and to retain skilled CEOs. Additionally, CEOs who acquire and develop general managerial skills will be able to extract higher pay from improved bargaining power. The findings will be of relevance to shareholders, regulators and company management who have an interest in executive pay and performance.

Economic Determinants and Consequences of Performance Target Difficulty

ABSTRACTUsing data on earnings targets in annual bonus plans, we construct and validate an empirical measure of beginning-of-year target difficulty and show that it is negatively associated with market uncertainty, retention concerns, and Chief Executive Officer (CEO) entrenchment. We then present several findings about the effect of target difficulty on performance and CEO compensation. First, greater target difficulty in annual bonus plans is associated with significantly lower CEO cash compensation as well as with decreases in other compensation awards. Second, moderately challenging targets (neither too easy nor too difficult to achieve) are associated with abnormal reversals in fourth-quarter performance, particularly reductions in fourth-quarter performance after abnormally favorable third-quarter performance. Third, greater target difficulty is associated with higher same-year abnormal earnings but at the same time with lower next-year earnings and stock returns. Combined, our findings suggest that target difficulty is an important incentive design choice that affects performance and executive compensation.Data Availability: Data used in this study are publicly available.

Do financial constraints moderate the relationship between CEO compensation and firm performance: an emerging market evidence

PurposeThe current study aims to investigate the impact of firm performance on chief executive officer (CEO) remuneration in the context of an emerging market, i.e. Pakistan. Further, the interactive effect of financial constraints is investigated in the pay–performance relationship.Design/methodology/approachThe study's sample includes 173 non-financial firms listed on the Pakistan Stock Exchange. This study covers the years 2010–2019. The CEO compensation of the sample firms is measured in terms of salary and bonuses, perquisites and stock options paid to the CEO, whereas firm profitability is measured by return on assets, return on equity, Tobin's Q (Q) and earnings per share. The KZ Index measures the degree of financial constraint. The fixed effect model (FEM) and system GMM estimation techniques were used to conclude the study's findings. In addition, to test the robustness of the results, the authors computed the level of financial constraints using the WW Index.FindingsThe findings show that firm performance has a significant positive impact on CEO compensation in all profitability measures except Tobin's Q. Further financial constraints have a significant negative impact on CEO compensation. The interactive variables of FC with all profitability measures have a significant negative impact on CEO compensation.Originality/valueThis study examines the relationship between firm performance and CEO compensation. Furthermore, the current study expanded the analysis by incorporating the role of financial constraints in the pay–performance relationship, which has not previously been tested, particularly in the context of an emerging market.

Does hometown connection between chairmen and CEOs improve compensation–performance sensitivity in China?

Based on a the micro dataset set of private Chinese-listed companies, this study examines the in detail the impact of hometown connections between chief executive officers (CEOs) and chairmen on CEO compensation–performance sensitivity. The empirical results suggest that a hometown connection prompts both the chairman and the CEO to pay more attention to their reputations, which improves CEO compensation–performance sensitivity. This hometown effect is more pronounced when the hometown culture is strong and the degree of marketization is high. The mechanism test reveals that an externally hierd CEO strengthens the influence of a hometown connection on CEO compensation–performance sensitivity, however, this influence weakens with increasing CEO tenure. Overall, this study enriches the literature on informal institutions and compensation contracts and provides valuable insights for company managers and policymakers in emerging markets.

How Much Should Healthcare CEO’s, Physicians and Nurses Be Paid?

No abstract available. Article truncated after 150 words. In 2019 the Southwest Journal published an editorial that stated one cause for the rising costs in healthcare was chief executive officer (CEO) compensation (1). Based on 2017 salaries, Peter Fine from Banner Health was the highest paid healthcare CEO in the country with compensation of $25.5 million. In comparison, the CEO of Mayo Clinic Arizona was paid a paltry $1.8 million (2). We decided to do a follow-up, and found that after a dip during the first year of the COVID-19 pandemic, Mayo raises resumed in 2021. Mayo’s CEO, Dr. Gianrico Farrugia, was paid $3.48 million in 2021 up from $2.74 million in 2020 (3). Dr. Richard Gray, CEO of the Mayo Arizona campus, was paid $1.78 million in 2021, up 26% from the previous year. I shared these numbers with a couple of the Mayo Clinic faculty who were surprised by the amount of compensation their executives were …

Corporate Governance and Its Impact on Equity Performance

Corporate governance is a complex and multifaceted subject. Furthermore, governance data are hard to collect and measure on a large scale. The classic approach to examine governance issues relies generally on the existence of allegedly good governance programs. In contrast to this approach, the authors use granular quantitative measures to assess the difficult-to-interpret aggregated governance framework with the aim to explore the relationship between corporate governance and equity performance. By digging into this dataset, they were able to establish a profile of effective and good corporate governance quantitatively, with a range of board characteristics, chief executive officer compensation, and shareholder voting rights from the point of view of investors.

CEO duality, CEO compensation, and earnings management: Evidence from China

This paper investigates whether chief executive officer (CEO) duality and CEO compensation influence earnings management. We obtain the data of the A-shares companies listed in both the Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) from the Chinese Securities Market and Accounting Research (CSMAR) database. Using a sample of 8,419 firm-year observations of 881 unique listed companies in China from 2011–2022, we find that the firms with CEO duality exhibit a higher level of earnings management, through both discretionary accruals and real activities. In addition, CEOs with higher cash-based compensation are more likely to engage in earnings management, while CEOs with higher equity-based incentives are less likely to engage in real earnings management. We further examine the moderating role of CEO duality and find that CEOs who also chair the board are more likely to engage in real earnings management. Additional analysis shows that state-owned companies are less likely to engage in earnings management activities. However, equity-based compensation provides incremental incentives for the CEOs of state-owned companies to manage earnings through accruals rather than real activities.

Facial attractiveness and CEO compensation: Evidence from the banking industry

This paper examines the effect of facial attractiveness on the compensation of bank Chief Executive Officers (CEOs). Consistent with the so-called beauty premium hypothesis, we document that good looks pay off for bank CEOs. Specifically, by utilizing machine learning to assess the facial appearance of the CEOs of large U.S. banks, we find that CEO facial attractiveness is positively associated with the annual total compensation and the discretionary, performance-based components of compensation. The total compensation of above-average looking bank CEOs is about 24% higher than the compensation of CEOs with below-average looks after controlling for various CEO-specific and bank-specific attributes that are known to affect executive compensation. Furthermore, our results indicate that facial attractiveness is weakly positively related to the annual base salary while being unrelated to the pay-performance and pay-risk sensitivities of bank CEO compensation. Overall, our empirical findings provide strong evidence for the existence of a beauty premium in the executive labor market.