Chief Executive Officer Remuneration Research Articles

Animal spirits, hubris, narcissism: Behavioural determinants of merger and acquisition outcomes

This paper draws upon the animal spirit, hubris, and narcissism theories to conduct an empirical study investigating the behavioural determinants influencing mergers and acquisitions (M&A). While M&A transactions have shown a trend of value destruction for acquiring firm shareholders, they have simultaneously demonstrated value enhancement for shareholders of the acquired firms. The repercussions of this value erosion extend beyond shareholders, impacting pension funds, employees, customers, suppliers, government tax revenues, and banks within the economy. Utilising a long-event window methodology, the research examines cumulative abnormal returns (CARs) for acquirers’ shareholders over a three-year post-completion period, focusing on Australian acquisitions from 1990 to 2006. The findings highlight animal spirit, hubris, and narcissism as significant behavioural determinants shaping M&A outcomes, thereby contributing to the ongoing discourse on hubris and hubris syndrome in M&A, with a suggestion that narcissism may be more prevalent than hubris. Additionally, the study identifies the joint tenure period of the Chairman and Chief Executive Officer (CEO) in the acquiring firm as a statistically significant factor contributing to acquiring firm shareholder value in M&A activities. Notably, a significantly negative correlation between CEO remuneration change and M&A outcomes is found. The paper recommends enhanced transparency for remuneration and nominations committees to address corporate governance issues raised by the study.

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.

A Tale of Two Theories–Critically Synthesized to Enhance Understanding of Executive Remuneration

This concept paper synthesizes two theories of executive remuneration. Soundly motivated, the two manifestations of agency theory of equity examine the market for managerial labor. The first theory models two families of determinants of Chief Executive Officer remuneration: economic factors and wealth expropriation. The second theory models equilibrium corporate governance quality by treating the Chief Executive Officer as a rational maximizer of her own wealth utility. This theory complements the first by facilitating consideration of the contextual role played by Chief Executive Officer greed, in undermining equilibrium pricing of economic factors and the efficacy of corporate governance mechanisms.

Is Additional CEO Remuneration a Performance Driver? DAX CEOs Evidence

This study aims to understand the impact of the additional remuneration of the Chief Executive Officer (CEO) over the mean remuneration of the board of directors on firms’ financial performance. The objective is to understand if the highest compensation of the CEO is a firm performance driver. In addition to the impact of total remuneration, the different remuneration components were split and analyzed. An unbalanced panel data of listed companies in DAX–Germany over the period from 2006 until 2019 is analyzed. Using dynamic methodology to estimate the models, the results show that higher additional remuneration positively explains higher firm performance measured using both accounting and market measures. The impact is also evident when additional remuneration components are analyzed. These results support the tournament theory, since when CEOs feel rewarded, they are more efficient in increasing the firm’s performance. Moreover, the firms’ financial characteristics, as well as macroeconomic factors, are also relevant to explaining its performance.

The impact of remuneration governance on chief executive officer overpayment

Background: Chief executive officer (CEO) payment and company performance are highly controversial, and existing research has focused on this link for decades. The study was conducted in South Africa where corporate governance regulators have introduced measures to improve the relationship between CEO pay and performance.Aim: This research aimed to explore the problem by extending Pepper and Gore’s (2015) behavioural agency theory to examine the moderating effect of remuneration governance on the CEO pay – company performance relationship.Setting: The study focused on the Top 100 listed companies in which several regulations concerning CEO pay were introduced, which provided the opportunity to examine such regulations on the alignment of CEO pay and company performance.Method: Panel data from 67 company annual reports were analysed over two decades with 871 datapoints, divided into three periods corresponding with the introduction of regulations. Analyses included corrected panel standard errors and estimated generalised least squared hierarchical multiple regression and moderated multiple regression analyses.Results: Results showed a statistically significant positive relationship between company performance measures and total CEO remuneration (including long-term incentives [LTIs]) for each of the three periods. We found that LTIs tied to performance-vested criteria and CEO minimum shareholding do enhance pay-performance sensitivity. Results further suggest that the behavioural agency theory is incomplete and researchers should consider the role of remuneration governance in moderating CEO overpayment.Conclusion: Remuneration governance should be refined through the inclusion of retrospective CEO remuneration disclosure to increase pay-performance sensitivity.Contribution: This research contributes to knowledge of CEO payment and company performance.

Alignment of executive long-term remuneration and company key performance indicators: An exploratory study

Orientation: Executive remuneration remains a controversial topic. A major concern is the perceived misalignment of executive remuneration with company performance. Key performance indicators (KPIs) represent the strategic focus areas that drive a company’s performance. Aligning executive remuneration, especially the long-term incentives (LTIs), with KPIs is, therefore, paramount in attaining company performance objectives. Research purpose: This study assessed the alignment of chief executive officer (CEO) LTI objectives and company KPIs for mining companies listed on the Johannesburg Stock Exchange (JSE). Motivation for the study: Prior research focused mainly on the relationship between short-term executive remuneration and company performance. The present study provides insights into the composition of CEO remuneration and whether CEO LTI objectives are aligned with company strategy. Research approach/design and method: The sample comprised 34 mining companies for the period 2010–2016. A standardised methodology was applied to measure LTIs and statistical techniques (descriptive statistics and a ratings analysis) were applied to assess the alignment between CEO LTI objectives and company KPIs. Main findings: Chief executive officer remuneration showed an increasing trend, with LTIs contributing more towards total CEO remuneration towards the end of the research period. A weak to moderate alignment was found between CEO LTI objectives and company KPIs. Practical/managerial implications: Improved, transparent governance is required to address the opaque disclosure on the alignment between company KPIs and the objectives of CEO LTIs. Contribution/value-add: The study demonstrated that annual (and integrated) report disclosures generally do not clearly describe company strategy (reflected by KPIs) nor is the link between KPIs and CEO LTI objectives always evident. Stakeholders thus may well question whether CEO remuneration is aligned to attaining sustainable company performance.

An investigation into the remuneration–CSR nexus and if it can be affected by board gender diversity

PurposeThis study aims to investigate the relationship between remuneration packages [chief executive officer (CEO) and director] and independent corporate social responsibility (CSR) practices (marketplace, environment, community, workplace and money spent on CSR) of 588 Malaysian listed firms during 2006–2017. Further, the study explored the moderating effect of board gender diversity on the remuneration-CSR nexus.Design/methodology/approachThe dynamic estimator; namely, the system generalized method of moments given by Arellano and Bover (1995) has been used on the data set to control dynamic endogeneity, unobserved heterogeneity and simultaneity problems.FindingsFindings indicate a weak relationship between remuneration and CSR where prior CEO remuneration negatively influences marketplace activities, environment-related activities and workplace practices. However, directors’ remuneration leaves no effect on socially responsible activities. Moreover, board gender diversity negatively moderates the CEO remuneration-CSR relationship and an insignificant moderating effect has been observed for directors’ remuneration-CSR nexus.Practical implicationsThis study is particularly significant for regulatory bodies of Malaysia e.g. Securities Commission Malaysia, Bursa Malaysia, policymakers, investors and managers. For academia, this study fetches support from agency theory and overinvestment hypothesis to explain the relationships.Originality/valueThis paper is novel in providing empirical evidence on the moderating effect of board gender diversity on the relationship between remuneration and independent CSR activities for the first time. Moreover, this study has sourced several theoretical and practical implications. Then, the study uses a dynamic estimator that caters to the problems of endogeneity, simultaneity and heterogeneity.

CEO compensation in early‐stage firms: Rewards for prospectivity and survival

AbstractPrior studies on chief executive officer (CEO) compensation focus mainly on large firms. This paper aims to suggest new factors associated with CEO compensation for small, homogeneous firms, specifically, Australian early‐stage mining exploration entities (MEEs). We document a set of predictors of CEO compensation proxying for economic performance, including geological prospectivity components of the exploration and evaluation (E&E) asset account and proceeds from equity raisings that enhances survival probabilities. We find positive associations between these predictors and CEO remuneration. In terms of CEO pay mix, we find that E&E asset acquisitions and equity proceeds are both positively associated with the proportion of option value in CEO total compensation. This suggests MEEs allocate their cash resources to investment opportunities, rather than CEO compensation. Overall, these findings, coupled with a significant and positive pay‐performance relation, provide evidence supporting efficient compensation practices in the MEE context.

The year-on-year analysis of the relationship between chief executive officer remuneration and state-owned company performance in South Africa

Orientation: Executive remuneration remains very much at the centre of academic and policy debates. There seems to be a lack of consensus on the origins of the substantial increase in executive remuneration.Research purpose: This study aimed to further explore the relationship between chief executive officer (CEO) remuneration and state-owned company (SOC) performance by investigating the year-on-year behaviour of the relationship. The observed trends regarding the direction and strength of the relationship inform business and economic occurrences that provide an organisation with an in-depth understanding of the relationship.Motivation for the study: The rationale for this analysis was to broaden the understanding of the behaviour of the relationship over a period by studying the year-on-year correlation coefficients.Research approach/design and method: This quantitative, longitudinal study collected secondary data from the annual reports of 18 Schedule 2 SOCs over the period 2006 to 2014. Spearman’s rank correlation coefficient was the principal statistical technique utilised in the study.Main findings: Overall, the results revealed a fluctuation in the relationship between CEO remuneration and SOC performance with turnover having the most stable relationship with both fixed pay and total remuneration.Practical/managerial implications: The use of discretion in the determination of CEO remuneration within SOCs is likely to attract attention considering the fluctuating, sometimes volatile, relationship between the constructs. This will create the motivation for dynamic-policy frameworks to ensure consistency and fairness.Contribution/value add: The value of this research is that SOC remuneration committees now have empirical evidence of the importance that turnover plays as a performance measure.

The association between board characteristics and the risk-adjusted return of South African companies

Regulatory documents and the literature recommend individuals with various characteristics to be included on a board, which should improve the efficiency of the board and promote company performance. Stakeholders have different expectations from a company, for which the literature holds the board accountable. Shareholders, for example, want superior returns, while government requires the implementation of transformation initiatives, especially in South Africa. It will therefore be valuable to several interested parties to know which board characteristics are likely to promote their objectives. Binary logistic regression is used to analyse the relationship between various board characteristics and the risk-adjusted performance of a company. The dataset comprised 170 companies, from the 13 largest sectors/subsectors of the Johannesburg Stock Exchange for the period 2009 to 2015. Percentage female (negative), chief executive officer remuneration (negative), chairman remuneration (positive) and non-executive director remuneration (positive) and the payment gap (positive) showed statistically significant relationships with the odds that a company is categorised as a top performer based on its risk-adjusted return. The findings inform various parties whether the benefits ascribed to the various board characteristics, by the literature and regulations, are actually obtained. The study moved away from the practice of looking for linearity in corporate relationships and expanded the list of board characteristics reviewed. It used a risk-adjusted performance measure, introduced innovative diversity measures, and focussed on South Africa.

CEOs’ Characteristics and Firm Performance: A Study of Indian Firms

The centre of interest of this research article is the association between chief executive officer (CEO) characteristics and firm performance. Employing a sample of Nifty 500 firms, the support found recommends that demographic and job-related characteristics may be related with the firm’s financial performance. We consider CEO gender, duality, nationality, remuneration and education level as CEO characteristics and we employ return on assets (ROA) as a representative for firm performance. This study widens the understanding of the important function played by the CEO and provides better insight into CEO-specific variables. Specifically, the reported findings specify a positive relationship between CEO remuneration and firm performance, thus indicating that compensation acts as a good inducement for executives to yield finer firm performance while CEO nationality appears to inhibit it, steering foreign directors to a minority spot. This implies that remuneration should be more thoughtfully attached to performance, so that proficient CEOs are not lured by more tempted compensation elsewhere and the decision to engage foreign nationals to company boards must be based on norms other than the firm’s future financial performance.

Components of CEO Remuneration and Non‐GAAP Disclosure

AbstractThis paper provides evidence of the effect of chief executive officer (CEO) remuneration on decisions to disclose voluntary non‐generally accepted accounting principles (non‐GAAP) financial measures. We investigate profit announcements that focus on the most emphasised part, which includes mandatorily identified information (results for the announcement to the market) and the least emphasised part, which incorporates other sections. By reading the profit announcements and manually collecting non‐GAAP financial measures (NGFM) data, there is no reliance on keyword search strings and as such we uncover the pervasiveness of the use of NGFM. Results show that the base component of CEOs’ remuneration plays a significant role in reporting NGFM in the most emphasised part of the profit announcement. Conversely, all three (base, short‐term and long‐term incentives) components of the remuneration package have a significant relationship with the reporting decisions in the least emphasised part of the statement. We find that, depending on the regulatory imposition and the emphasis assigned to the section of the profit announcement, the motive for voluntary disclosure of NGFM can be explained as altruistic (informative) or opportunistic (misleading). We contribute evidence on ‘pay–action’ rather than ‘pay–performance’ by incorporating all three components simultaneously into the framework to maintain the assumption of correspondence and internal consistency among those components.

Chief Executive Officer and Chief Financial Officer compensation relationship to company performance in state-owned entities

Background: Optimal contracting continues to dominate boardroom and dinner discussions worldwide in light of the 2008 global financial crisis and especially in South Africa, due to the growing income gap. Increased scrutiny is being placed on South African state-owned entities (SOEs), as a result of the seemingly poor performance of SOEs. Some of the SOEs are reported to have received financial bailouts from taxpayers’ money, while executives are raking in millions of rands in remuneration, provoking some concerns on the alignment of executive pay to company performance in SOEs.Aim: The study will assist remuneration committees and policymakers in the structuring of executive pay in SOEs to ensure alignment to company performance.Setting: The study sought to assess, based on empirical evidence, if there is a positive relationship between Chief Executive Officer (CEO) and Chief Financial Officer (CFO) remuneration and company performance in South African SOEs in the period between 2010 and 2014. All 21 Schedule 2 SOEs were included in the study.Methods: The research was a quantitative archival research methodology. Correlation and multiple regression analysis were the main statistical techniques used in this study.Results: Contrary to popular media, a positive relationship between CEO and CFO remuneration (fixed pay and short-term incentives) and company performance in SOEs was observed. Company size appears to be the key determiner of fixed pay in SOEs. The positive relationship was mainly noted on absolute profitability measurements like EBITDA (earnings before interest and tax and depreciation and amortisation) and net profit.Conclusion: SOE remuneration committees and policymakers should maintain the positive relationship; however, more emphasis should be placed on financial efficiency measurements so as to enhance efficiencies in SOEs.

Financial indicators of company performance in different industries that affect CEO remuneration in South Africa

In an attempt to address the growing gap between chief executive officer (CEO) remuneration and that of the general worker, reign in rising CEO remuneration, and justify the portion of long-term incentive pay that makes up the bulk of CEO remuneration, shareholders and other stakeholders are trying to find definitive factors that will link CEO remuneration to company performance. Finding this link has become central to all executive remuneration issues. The results of the studies linking CEO remuneration to company performance are varied and inconclusive, particularly in South Africa. The reason for this is that previous studies have not looked at whether the company performance measures chosen have definite relationships with CEO remuneration in each industry. This study investigated eleven financial indicators of company performance to determine which of them have significant and positive relationships to CEO remuneration in different industries in South Africa. 254 South African listed companies, spread over 5 industries, were analysed for the period 2008 to 2012 using panel data analysis and statistical tests. The results were conclusive, finding performance metrics that had a positive and significant relationship to CEO remuneration in 4 of the 5 industries investigated, as well as over the aggregate of all the industries.

The relationship between Chief Executive Officer remuneration and financial performance in South Africa between 2006 and 2012

Orientation: The relationship between Chief Executive Officer (CEO) remuneration and organisation performance has been a topic of close scrutiny, especially since the global financial crisis. Optimal contracting relies on the premise that effective incentives will link organisation financial performance and CEO remuneration in ways that will be in the best interests of both shareholders and CEOs.Research purpose: The purpose of this research study was to investigate the relationship between CEO remuneration and organisation performance in South Africa between 2006 and 2012 and to determine whether the two constructs were positively correlated.Motivation for the study: The study provides an evidenced-based understanding of the nature of the CEO pay-performance relationship in South Africa. Understanding this relationship is critical to finding a suitable model to structure executive remuneration that will protect shareholders from over-remunerating executives in times of economic appreciation, whilst protecting executives from being underpaid in times of economic depreciation.Method: The financial results and CEO remuneration of 21 of the top 40 listed companies on the Johannesburg Stock Exchange were analysed for the period 2006–2012. The research was a quantitative, archival study. The primary statistical techniques used in the study were correlation analysis and multiple regression analysis.Main findings: The primary finding of the current research indicates that between 2006 and 2012 organisation executives have noticeably been moving away from focusing on short-termincentives, which are categorised as performance-related elements of remuneration packages.Based on these findings, it is evident that the relationship between executive remuneration and organisational financial performance has been experiencing a decline, especially since the 2008 global financial crisis. The decline has predominantly been due to a move away from performance-related elements of remuneration contracts by CEOs, creating a disconnect between CEO remuneration and organisational performance. The findings suggest that, to a large extent, remuneration contracts for CEOs are no longer optimal for the organisation and its shareholders, but are influenced by the propensity of executives to enhance their own remuneration. There exists a link between short-term incentives received by CEOs and accounting-based organisational performance measures; on the other hand, fixed pay linked with organisational performance measures continue to be eroded as organisations’ executives become more innovative as they are noticeably moving away from focusing on short-term incentives.Practical/managerial implications: A stronger test of the pay-performance link and the power of incentive design are required in order to ensure that executives are rewarded or penalised for poor performance. The question of how executives are paid also needs to be considered.Contribution: This research contributes to the literature on CEO remuneration by providing an evidenced-based understanding of the nature of the CEO pay-performance relationship in South Africa. Understanding this relationship is critical to finding a suitable model to structure executive remuneration that will protect shareholders from over-remunerating executives in times of economic appreciation, whilst protecting executives from being underpaid in times of economic depreciation.

Remuneration committee independence and CEO remuneration for firm financial performance

Purpose– As a result of the Australian Government Productivity Commission's recommendation to mandate remuneration committee independence for ASX300 companies, this study aims to investigate whether voluntary remuneration committee independence aligns chief executive officer (CEO) total pay and bonuses with firm financial performance.Design/methodology/approach– A series of hypotheses test the research question using multiple regressions for a sample of 143 ASX300 companies during 2001. This time was prior to strengthen corporate governance regulation, but after mandated executive remuneration disclosure, thus capturing varying levels of voluntary remuneration committee independence.Findings– This study shows firm size is an influential factor in the relationship under investigation. ASX300 large firm remuneration committees link CEO total remuneration and bonuses to firm financial performance. Smaller ASX firm remuneration committees do not link either type of CEO remuneration to performance despite remuneration committee independence. Findings are mixed for medium-sized ASX300 firms.Research limitations/implications– Limitations include the necessary time restriction to 2001 for sampling the ASX300 firms. The implication of this study's findings is that the proposed public policy for mandatory remuneration committee independence is not universally effective in linking CEO remuneration to firm financial performance for ASX300 firms.Originality/value– This study contributes to the limited research on voluntary remuneration committee independence in relation to CEO remuneration and firm financial performance in the Australian context.

Pay, Performance and Governance in Irish PLCs

This study finds that company size is a major determinant of chief executive officer (CEO) compensation in Ireland. There is little evidence of a relation between CEO remuneration and company performance. However, several corporate governance variables are related to remuneration in a manner that suggests that good governance reduces executive pay. There is also some evidence of a distinctive ‘US effect’, in that companies that are more exposed to business practices in the United States (US) have higher remuneration, particularly in the form of executive stock options.

Chief executive officer remuneration disclosure quality: corporate responses to an evolving disclosure environment

AbstractWe examine chief executive officer remuneration disclosure in Australia from 1998 to 2004. Disclosure was first required by the Company Law Review Act 1998 (CLRA98). Despite CLRA98's clear intentions, firms generally failed to comply until the requirements were formalized by Director and Executive Disclosures by Disclosing Entities (AASB1046), issued in 2004. For a sample of 124 firms, we find significant improvements in disclosure concurrent both with CLRA98 and AASB1046. We also find firm size, corporate governance, auditor quality, cross‐listing status and public scrutiny to be significant explanations of disclosure. Our results indicate that high quality disclosures will only come about through detailed, black letter requirements and that principle‐based legislation involving interpretative discretion is unlikely to produce the desired level of disclosure.

Australian chief executive officer remuneration: pay and performance

International studies document strong evidence that chief executive officer (CEO) remuneration is positively correlated with corporate performance. Prior Australian studies, however, find no positive link between CEO pay and market performance. In the present paper we re-examine the association between Australian CEO remuneration and firm performance using standard empirical models from the international literature. We find that in every respect the Australian evidence is consistent with international findings for firms of the USA, UK and Canada. In particular, we document CEO pay‐performance association as positive and statistically significant.

Tenure, promotion and executive remuneration

Commentators frequently remark on the need to pay high levels of chief executive officer remuneration to attract, motivate and retain the best executives for Britain's leading companies. This paper presents the results of an empirical investigation into tenure, promotion and executive remuneration. The remuneration of the chief executive officers at some of Britain's largest businesses is examined. In the majority of cases the CEO had not been lured away from rivals but had risen through the internal labour market, often after a long–term employment relationship. Moreover, long job tenure and internal promotion were associated with higher levels of pay. It is concluded that understanding of this controversial issue will be improved if it is recognized that a part of current executive pay may be a reward for previous successful performance.