Chief Executive Officer Compensation Research Articles

The effect of addback statutes on CEO compensation

AbstractExploiting the adoption of addback statutes, which occurred at different times, as exogenous shocks to corporate taxable income, we examine the effect of tax policy changes on the compensation of chief executive officers (CEOs). We provide evidence that CEOs of firms headquartered in states affected by addback statutes experienced a decrease in total compensation; the decrease is stronger for firms with higher intangibles and asset replacement costs relative to book values, and weaker for firms whose CEOs are more powerful. Our results have important implications for policy‐makers who strive to combat pay inequality and managerial myopia through tax laws.

CEO performance targets: The impact of Big 4 accounting firms versus other compensation consultants

Using a sample of ASX 500 firms over the 2005–2019 period, we document substantial variation in the use of performance targets within Chief Executive Officer (CEO) compensation contracts, contrasting firms advised by Big 4 accounting entities with other compensation consulting firms. Firms that engage a Big 4 accounting firm are more likely to implement explicit non-financial performance targets within the short-term incentive plan, effectively minimising opportunities for post hoc justification. They also favour the incorporation of relative performance targets that mitigate pay for luck in the long-term incentive plan. Firms that engage a Big 4 accounting firm demonstrate a similar pay-for-performance relation to firms that do not engage a compensation consultant, while firms engaging non-Big 4 consultants exhibit a lower pay-for-performance relation. Our findings suggest that Big 4 accounting firms provide compensation recommendations that encourage the alignment of interests between managers and shareholders. JEL Classification: J33, M12, M52, L25

Mergers and Acquisitions, CEO Compensation, and Corporate Governance in the Hospitality and Tourism Industry

Drawing on agency theory, we explore the relationship between mergers and acquisitions (M&As) and chief executive officer (CEO) compensation in the hospitality and tourism (HT) industry. Specifically, we investigate whether growth via acquisitions, a popular strategy in the HT industry, is influenced by CEO compensation. Using a sample of HT and non-HT firms for comparison from 1992 to 2019, we find that CEO compensation is significantly higher after acquisitions for both HT and non-HT firms. However, when controlling for common compensation determinants, CEO compensation is significantly higher in HT firms but not in non-HT firms. Surprisingly, in our sample, corporate governance is not significantly related to changes in CEO compensation post-acquisition. In addition, while the fraction of cash-based compensation is negatively related to M&A propensity in both HT and non-HT firms, the fraction of equity-based compensation is unrelated to M&A propensity in HT firms. Our study fills an important gap in the sparse literature on the link between M&A and CEO compensation in the HT industry, providing theoretical implications for future research and managerial implications for boards of directors to design compensation plans that align the interests of managers and shareholders.

Is CEO power linked to corporate social responsibility disclosure? Evidence from an emerging economy

AbstractThe research aims to analyze the influence of Chief Executive Officer (CEO) power factors on corporate social responsibility (CSR) disclosure by listed companies on the Vietnamese stock market. To examine the relationship between CEO power and CSR disclosure (CSRD), our study used the generalized method of moments (GMM) estimation method with panel data from 210 listed companies on the Vietnamese stock market during the period 2015–2022. The research results indicate that factors such as duality, tenure, share ownership, and CEO compensation reduce the level of CSR disclosure by companies. On the other hand, CEO education and age show a positive relationship with disclosure level. The empirical results of this study provide a solid foundation for managers to establish effective corporate governance mechanisms and enhance the quality of sustainable reporting by companies.

Benchmarking executive compensations: exploring fresh perspectives on chief executive officer (CEO) compensation drivers in major US corporations

Benchmarking executive compensations: exploring fresh perspectives on chief executive officer (CEO) compensation drivers in major US corporations

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.

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.

The impact of CEO compensation and governance disclosure on firm value moderated by integrated reporting

Firm value can increase market confidence, not only for current performance but also for the company’s prospects in the future Fama (1978). To prove empirically the effect of chief executive officer (CEO) compensation and governance disclosure on firm value moderated by integrated reporting (IR) is the aim of this study. The study population is Asian companies registered in the Integrated Reporting database examples. Based on the specified sample criteria, 135 secondary data were obtained from 2019–2021. The analysis tool used to process the data is WarpPLS 7.0. This study gives the result that firm value is influenced by governance disclosure and IR moderates the effect of governance disclosure on firm value, while CEO compensation has no effect on firm value. The practical implications of this study are to confirm the importance of corporate governance disclosure, the role of IR in increasing the value of companies, and its impact on investment decisions. In addition, this study is also useful for regulators in relation to the preparation of corporate financial reporting policies so that they are transparent and accountable.

Does institutional holders’ approval really matter? An examination of Israel’s binding vote on CEO compensation, from directors’ point of view

This study examines the implications of mandatory shareholder approval for chief executive officer (CEO) compensation in Israel, following the “say-on-pay” (SOP) framework. Through the utilization of a binding voting framework, shareholders evaluate the effectiveness of CEO compensation structures. A survey involving 106 Israeli directors occupying diverse board positions, including external, independent, regular, and chair positions, reveals that external directors demonstrate a greater appreciation for institutional votes. This highlights their acknowledgment of institutional perspectives and underscores the critical significance of fostering effective communication between boards and institutional stakeholders to strengthen corporate governance frameworks. The study emphasizes the pivotal role of dialogue in enhancing governance structures through a nuanced examination of challenges in executive compensation governance

O efeito moderador do narcisismo do CEO na sensibilidade da remuneração ao desempenho

ABSTRACT This study aims to examine whether the Chief Executive Officer (CEO) narcissism has a moderating effect on pay-performance sensitivity. We fill a gap in the existing literature, which overlooks the behavioral aspects of agents in the design of executive compensation plans, by providing evidence of the moderating effect of CEO narcissism on pay-performance sensitivity. We shed light on the fact that shareholders and potential investors might face higher agency costs when investing in firms led by narcissistic CEOs, considering that narcissistic CEOs tend to receive higher levels of compensation than their peers, regardless of the company’s performance. This study also has implications for board members and recruiters, who may take this psychological aspect into account when proposing compensation schemes to CEOs. The results extend the prior discussion on low pay-performance sensitivity (or its non-significance) by suggesting that this might be partially attributed to the psychological characteristics of CEOs, which play a role in the design of executive compensation. A sample of 1,057 non-financial U.S. firms (8,869 firm-year observations) during the period 2002-2018 was analyzed using system generalized method of moments (GMM-SYS) regressions due to the endogenous relationship between CEO compensation and firm performance. The main results show that CEO narcissism reduces the association between CEO compensation and firm performance, supporting the prediction that narcissism can be viewed as a “dark side” in the design of executive compensation plans. This finding is robust to alternative measures of pay-performance sensitivity, and further robustness checks indicate that our results are not driven by CEO overconfidence. Therefore, this study contributes to the literature by providing, to the best of our knowledge, the first empirical evidence of the moderating effect of CEO narcissism on pay-performance sensitivity.

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.