Compensation Arrangements Research Articles

Role of CEO Age in Determining Executive-employee Pay Gap in Chinese Listed Manufacturing Companies: A Perspective of Risk Aversion

The paper investigates the effect of CEO age on executive-employee pay gap (EEPG), a newly focused dimension of executive compensation arrangements by the literature, by choosing the panel data consisting of 3495 firm-years in Chinese listed manufacturing companies during 2010-2014 as the research sample. Empirical analysis based on multiple regression analysis adopting the method of OLS by applying SPSS19.0 makes a new finding, i.e., there is a positive relationship between CEO age and EEPG, which holds robust with the change of the measures. Further investigation on the determination mechanism of CEO age on EEPG show that older CEOs intend to set relatively lower EEPG out of their risk aversion needs.

The Role of Corporate Governance Failure in the Banking Sector

Corporate governance is the organizational arrangement by which a company represents and serves the interests of its investors. It encompasses anything from a company’s boards to executive compensation schemes to bankruptcy laws. Generally, the definitions of corporate governance which was found in the literature tend to share certain characteristics. One of this characteristic is the notion of accountability. Corporate governance is the process of supervision and control which intends to ensure that the company’s management acts in accordance with the interests of shareholders (Parkinson, 1994). Corporate governance, the internal policies and leadership that guide the actions of corporations, played a major part in the recent global financial crisis. While much blame has been targeted at compensation arrangements that rewarded extreme risk-taking but did not punish failure, the performance of large, supposedly, sophisticated institutional investors in this crisis have not been examined. Corporate governance has come to the forefront of academic research due to the vital role it plays in the overall health of economic systems. Corporate governance was long ignored as a matter of potential importance for the development of a nation’s economy. This paper, however, expresses some cases in the field of corporate governance, regarding the failure of corporate governance. Institutional investors failed to effectively monitor such volatile investments, ignoring relatively well-established corporate governance principles and best practices. Corporate Governance Failures offers nuanced and realistic proposals to mitigate future financial pitfalls.

Securities Exemptions - Amended and Reinterpreted

This paper describes the Securities and Exchange Commission amendments to Rules 504 and 147, exemptions from the registration requirements of the Securities Act of 1933, and the adoption of new Rule 147A to broaden the availability of the intrastate registration for the offer and sale of securities. These changes become effective during the first half of 2017.This paper also discusses new C&DI's that the SEC issued for the interpretation of SEC Rule 701 (exemption certain offers and sales pursuant to certain compensatory benefit plans and other compensation arrangements) and Rule 144(d) (holding periods under Rule 144). These interpretations are effective immediately.

Blockholder Heterogeneity, CEO Compensation, and Firm Performance

This paper examines heterogeneity in blockholder monitoring across investor types. We document which blockholder types (e.g., mutual funds, hedge funds) are more likely to be associated with active monitoring and show that firms targeted by such blockholders are more likely to increase the equity portion of chief executive officer (CEO) pay. Further, using market-wide and exogenous shocks to liquidity to identify differences in efficacy across blockholder types, we observe greater operating-performance improvements in actively monitored firms when passive monitoring is less effective, suggesting causal impact. We propose differences in compensation arrangements across blockholder types as a mechanism underlying blockholders’ heterogeneous role.

Do Investment Banks Have Incentives to Help Clients Make Value‐Creating Acquisitions?

Many have long suspected that investment banks, when advising corporate clients on potential acquisitions, have strong incentives just to “get the deal done” with little if any motive for urging clients to walk away from “bad” deals. The incentive to complete deals comes from compensation arrangements in which the bulk of the bankers' fees depend upon completion of the deals. Several earlier studies have provided support for this suspicion by reporting findings that show banks' market shares of advisory services depending mainly on two variables—their previous market shares and their deal completion rate—with little if any connection to the value created (or destroyed) for their clients' shareholders.In their recently published study, the authors revisit that relationship and reach a number of different conclusions: (1) advisors in acquisitions that create more value for clients are more likely to be chosen for future deals; (2) the changes in bankers' advisory market shares are strongly related to the value created for prior clients; and (3) the changes in banks' market values are positively correlated with the value created for their acquirer clients.In sum, the findings suggest that banks have significant market‐related incentives to advise their clients to pursue value‐creating acquisitions and to avoid deals likely to reduce their market values.

Executive Compensation Amounts and Arrangements Held Amply Reasonable

In an opinion of significance to public charities and other types of tax‐exempt organizations, the US Tax Court ruled, on May 11, that compensation paid to two company executives, who are working hard and otherwise are integral to the success of the entity, is amply reasonable (H.W. Johnson, Inc. v. Commissioner).

The coal question that emissions trading has not answered

Can emissions trading assist with the task of placing a limit on coal production and consumption in Australia? This paper outlines a critical political economy perspective on coal and a flagship ‘market mechanism’ for emissions reduction. The prospects for an effective emissions trading scheme in coal-dominated economies are considered in light of its theoretical justifications as well as recent attempts to price carbon in Australia. Emissions trading is a weak instrument that does not address real-world failures of coal governance. At their theoretical best, carbon prices produce marginal changes to the cost structure of production. In practice, the Australian case demonstrates emissions trading is an attempt to displace the emissions reduction task away from coal, through compensation arrangements and offsetting. In light of the urgent need to rapidly reduce global emissions, direct regulation and democratisation of coal production and consumption should be flagship climate policy.

Relative Wealth Concerns, Executive Compensation, and Systemic Risk-Taking

Given the recent empirical evidence on peer effects in CEO compensation, this paper theoretically examines how relative wealth concerns, in which a manager’s satisfaction with his own compensation depends on the compensation of other managers, affect the equilibrium contracting strategy and managerial risk-taking. We find that such externalities can generate pay-for-luck as an efficient compensation vehicle in equilibrium. In expectation of pay-for-luck in other firms, tying managerial pay to luck provides insurance to managers against a compensation shortfall relative to executive peers during market fluctuations. When all firms pay for luck, we show that an effort-inducing mechanism exists: managers have additional incentives to exert effort in utilizing investment opportunities, which helps them keep up with their peers during industry movements. In addition, we show that compensation arrangements involving pay-for-luck that are efficient from the shareholders’ perspective can nonetheless exacerbate aggregate fluctuations in the real economy by incentivizing excessive systemic risk-taking, especially in periods of heightened risk.

Compensation Provisions in a Venture Capital-Limited Partner (VC-LP) Contract : A Theoretical Framework

In a venture capital (VC) deal, a partnership contract is designed to avoid different conflicts arising due to information asymmetry and agency problem and to make appropriate provision for compensation. This study investigated different theoretical approaches that have been deployed to understand this phenomenon. This article extracted the important aspects of the compensation structure and covenants required to set in the contract between venture capitalists and their limited partner (LP) in order to meet the agreed-upon proportion of return distribution and proposed a VC compensation model. Various studies were analyzed to get evidence on various aspects of a VC deal, such as the reasons why professional VCs exist, and factors that determine the design of a contract. Private ownership, information asymmetry, and illiquidity associated with a VC investment are key explanatory factors, which make VC - LP partnership agreement different from other financial contracts. The findings of this study could be alienated into two constituents. First, the compensation that a VC receives from its LP is performance based, which varies according to the size of the fund, experience of VC, past performance of VC, and signalling function. Second, some important covenants are generally mentioned in such a contract during raising funds for investments, though these are heterogeneous in each deal and their contribution in compensation allocation varies with each deal. In this study, we have proposed a compensation model for venture capitalists as a general partner by their limited partner, which is based on a principal-agent model. Also, this study focuses on contractual covenants, which are responsible for imparting flexible incentive provision and provide control over VC activity. The arrangement of VC compensation and covenants depend upon the management support and effort of VCs. This study can contribute to resolving the conflicts - between venture capitalists and their investors - that arise due to the agency problem and bring to light the compensation arrangement and provision of covenants used in the contract between VCs and their LPs.

Rationalizing the Dodd-Frank Clawback

On July 1, 2015, the Securities and Exchange Commission (SEC) proposed an excess-pay clawback rule to implement the provisions of Section 954 of the Dodd-Frank Act. I explain why the SEC’s proposed Dodd-Frank clawback, while reducing executives’ incentives to misreport, is overbroad. The economy and investors would be better served by a more narrowly targeted “smart” excess-pay clawback that focuses on fewer issuers, executives, and compensation arrangements.

Has the participation of older employees in the workforce increased? Study of the total Swedish population regarding exit from working life.

Aims: This study investigated: (i) the workforce participation in Sweden among older employees before and after changes in eligibility for sickness absence and unemployment compensation by a social insurance reform; and (ii) absence and early exit mechanisms from the workforce for different professions by looking at sickness benefits, disability pension and unemployment, early statutory pension, employment pension and unregistered economic supply. Methods: A register-based follow-up study of the total Swedish workforce population of 55–64-year-olds, measured in 2004 and 2011. Results: The total proportion of individuals aged 55–64 in the workforce increased between 2004 and 2011, but the increase was mostly in professions with lower educational requirements, a lower salary and dominated by women. Both in 2004 and in 2011, men in professions with higher educational requirements more often exit working life with an early statutory pension and employment pension. In contrast, professions with lower educational requirements more often absence working life with sickness benefits, disability pension and unemployment compensation than other professions in both 2004 and 2011. Conclusions: The change in regulations seems to have contributed to an overall shrinking proportion of individuals within the sickness benefit and disability pension schemes. At the same time the proportion of individuals taking an early pension has increased. The results indicated a tendency of passing on the costs of labour-market exit within different economic compensation arrangements, as well as to the individuals themselves; for example, less sickness benefit, disability pension, but more statutory pension and employment pension earlier.

Where the Bucks Stop: A Shadow Federal Budget for 2016

The 2016 edition of the C.D. Howe Institute’s annual Shadow Federal Budget puts a sustainable financial position and fiscal path at the centre of its plans. Confidence that the country will successfully navigate an environment of slower global growth and population aging is an essential backdrop for government measures to support economic growth in the medium and long term and to promote better opportunities for all Canadians. This Shadow Budget reflects our view that the new government in Ottawa must temper the sense created by the election campaign and early post-election announcements that there are no limits to what the federal government can spend and borrow. The commitment during the election campaign to borrow for infrastructure spending can justify only modest deficits: most federal infrastructure projects last a long time, and writing their cost off over long periods adds modest amounts to annual expenditure. Deficits beyond what capital projects justify add to the federal government’s net debt, and hurt growth by absorbing saving that would otherwise fund Canadian investment. Canada needs fiscal measures that will boost productive capacity. This Shadow Budget emphasizes growth-friendly tax policy, openness to trade and competition, and supportive reform of institutions and regulations. It prioritizes spending on federal infrastructure projects while holding the line on the funding already committed for projects under provincial or municipal control. The Shadow Budget will support financial sustainability by reforming federal employee compensation arrangements, providing a more accurate picture of Ottawa’s balance sheet, ensuring federal transfers to the provinces stay on a sustainable course, and limiting exposure to contingent mortgage insurance liabilities. Looking to the future, a key theme of this Shadow Budget is improving opportunities for Canadians. It proposes new spending in several areas, including federal support for provincial drug programs and on reserve education, and proposes measures to level the playing field for Canadians saving for retirement. Reflecting our approach of holding the line in some areas and increasing spending in others, this 2016 Shadow Budget projects modest deficits of $15.3 billion and $12.2 billion over the next two fiscal years, setting the stage for a return to surplus in 2019/20.

The Wadi al-Hawarith affair (Emek Hefer): disputed land and the struggle for ownership: 1929–33

ABSTRACTThe Wadi al-Hawarith (Emek Hefer) affair was considered to be one of the prominent land disputes between Jews and Arabs in Palestine during the British mandate period. The region in which the dispute broke out was found south of Hadera in Emek Hefer.The purchase of lands of Wadi al-Hawarith, by Jewish bodies, had already started at the end of the nineteenth century and continued for four decades, and during this there were disputes between the Jews and Arabs, which were accompanied by legal hearings.The Jewish National Fund tried to reach an arrangement by means of compensation for the Bedouin tenants who dwelled on the lands of the valley, in exchange for their willingness to leave the territory. From time to time, the Bedouins agreed to this, but they went back on their agreement.Despite the effort to reach compensation arrangements with the Bedouins, the Palestinian political leadership was interested in inflaming the opposition of the Bedouins to leaving the land. This is what caused a long string of trials, which continued for many years.

Urology Group Compensation and Ancillary Service Models in an Era of Value-based Care.

Changes involving the health care economic landscape have affected physicians' workflow, productivity, compensation structures, and culture. Ongoing Federal legislation regarding regulatory documentation and imminent payment-changing methodologies have encouraged physician consolidation into larger practices, creating affiliations with hospitals, multidisciplinary medical specialties, and integrated delivery networks. As subspecialization and evolution of care models have accelerated, independent medical groups have broadened ancillary service lines by investing in enterprises that compete with hospital-based (academic and nonacademic) entities, as well as non-physician- owned multispecialty enterprises, for both outpatient and inpatient services. The looming and dramatic shift from volume- to value-based health care compensation will assuredly affect urology group compensation arrangements and productivity formulae. For groups that can implement change rapidly, efficiently, and harmoniously, there will be opportunities to achieve the Triple Aim goals of the Patient Protection and Affordable Care Act, while maintaining a successful medical-financial practice. In summary, implementing new payment algorithms alongside comprehensive care coordination will assist urology groups in addressing the health economic cost and quality challenges that have been historically encountered with fee-for-service systems. Urology group leadership and stakeholders will need to adjust internal processes, methods of care coordination, cultural dependency, and organizational structures in order to create better systems of care and management. In response, ancillary services and patient throughput will need to evolve in order to adequately align quality measurement and reporting systems across provider footprints and patient populations.

Relaxed Stark Law Means More Flexibility in 2016

Medicare has relaxed some requirements of the Stark Law through its 2016 fee schedule and created new exceptions for compensation arrangements under the statute. The changes make it easier to recruit nonphysician employees, share rental space, and operate on expired contracts without fear of violating the law. “These rules show the government was seeking to give some flexibility in the area of Stark procedure or technical issues,” said Julie E. Kass, JD, a Washington area health law attorney who specializes in Stark and antikickback laws. “I think what [the Centers for Medicare & Medicaid Services] was seeing, and the kinds of issues being disclosed, weren’t things that were going to raise the risk of fraud or Julie E. Kass, JD abuse to the program. Recognizing that, they wanted to make sure there weren’t unnecessary concerns about these, or unnecessary [efforts].” What should y ou know about the Stark Law modifications? Ms. Kass and Philadelphia-based health law attorney Karl A. Thallner Jr., Esq., discussed the latest changes in a recent interview.

Influence of partial undergrounding on the transient stability of EHV power transmission systems

This paper investigates the transient stability issues that may occur when long underground cables are added to EHV transmission systems. Dynamic behaviour of generators and terminal voltages with respect to various disturbances like cable disconnection/connection and fault currents are studied. Simulations are performed for the 2020 model of the Dutch transmission grid. The effects of partial undergrounding in two case studies with the total transmission length of 280km are investigated. This work proposes criteria for accurate sizing of cable shunt compensation for dynamic simulation purposes based on grid voltages, generator reactive powers and power exchange with neighbouring grids. Moreover, a comparison between the dynamic behaviour of system variables for three different shunt compensation arrangements including line-end compensation, line-end middle compensation, and cable-end compensation is performed. Finally, a specific switching sequence for line disconnection/connection to improve voltage profiles and generator behaviours is introduced. The simulations are performed in PSS®E environment.

Cable Capacitance Attack against the KLJN Secure Key Exchange

The security of the Kirchhoff-law-Johnson-(like)-noise (KLJN) key exchange system is based on the fluctuation-dissipation theorem of classical statistical physics. Similarly to quantum key distribution, in practical situations, due to the non-idealities of the building elements, there is a small information leak, which can be mitigated by privacy amplification or other techniques so that unconditional (information-theoretic) security is preserved. In this paper, the industrial cable and circuit simulator LTSPICE is used to validate the information leak due to one of the non-idealities in KLJN, the parasitic (cable) capacitance. Simulation results show that privacy amplification and/or capacitor killer (capacitance compensation) arrangements can effectively eliminate the leak.

Fourth Circuit Upholds $237 Million Judgment Against Tuomey Healthcare System

On July 2, 2015, the U.S. Court of Appeals for the Fourth Circuit delivered what could be the final note in Tuomey Healthcare System’s (“Tuomey”) decade long battle with the government regarding the legality of certain physician compensation arrangements under the Stark law and False Claims Act. In its opinion, the court affirmed a $237,454,195 lower court judgment against Tuomey for violating the Stark law and False Claims Act. The court’s affirmance serves as a sobering reminder to hospitals and physicians of the staggering liability that could arise from noncompliant compensation arrangements.

The Evolution of Internet Service Providers from Partners to Adversaries: Tracking Shifts in Interconnection Goals and Strategies in the Internet's Fifth Generation

This paper will examine new models for the carriage of Internet traffic with an eye toward providing insights on how the interconnection process has changed and what positive and negative consequences have resulted. Internet Service Provider (“ISP”) interconnection used to constitute a cooperative undertaking, but now it increasingly requires difficult and protracted negotiations between ventures that consider themselves adversaries in a winner take all transaction.The paper concludes that new commercial arrangements, such as paid peering, can achieve mutually beneficial outcomes. However, the paper also identifies instances where migration from traditional interconnection arrangements can harm consumers by reducing some of the benefits accruing from network externalities.At the Internet’s inception, carriers providing essential bit switching and transmission functions largely embraced twin goals of expanding connections and the number of users. These ventures refrained from metering traffic and charging for carriage based on the assumption that traffic volumes roughly matched, or that traffic measurement was not worth the bother in light of external funding from government grants. Most ISPs bartered network access through a process known as peering in lieu of metering traffic and billing for network use.As governments removed subsidies and commercial carriers invested substantial funds to build larger and faster networks, ISPs more accurately identified carriers and customers triggering higher costs and targeted them for rates increases. Currently the issue of cost causation has become a key commercial and regulatory policy issue, because of the potential for traffic disconnections and service degradation when parties cannot agree on interconnection terms. The FCC has responded with ex ante, common carrier regulatory safeguards designed to anticipate and prevent anticompetitive practices with emphasis on ISPs that provide retail broadband services and also negotiate and implement interconnection agreements with upstream carriers and content distributors.A number of highly publicized traffic interconnection and compensation disputes have recently occurred among ISPs, and between them and content distributors. The most controversial clashes have involved Netflix and ventures handling its extremely large volume of downstream traffic, on one hand, and “Retail ISPs,” such as Comcast and Verizon, that provide last mile delivery of traffic to end users. These disputes evidence a substantial change in strategies and tactics among ventures operating within the Internet ecosystem. In particular, the process for negotiating network interconnection appears increasingly contentious instead of cooperative as carriers attempt to extract higher compensation. Retail ISPs appear most able and inclined to exploit possible market power as terminating monopolies particularly when negotiating with content distributors and Content Distribution Networks (“CDNs”) that provide downstream video delivery. Most broadband subscribers in the United States have limited facilities-based carrier options. Consumers typically subscribe to only one ISP and they may not readily change carriers even if options exist. Additionally, end users require higher transmission speeds and downloading capacity in light of growing demand for bandwidth intensive video, often by multiple users at the same location. Under current marketplace conditions, Retail ISPs have raised rates and segmented service into different tiers of transmission speed and downloading capacity. Additionally they have imposed surcharges on upstream CDNs and other carriers. Exploiting superior bargaining leverage has translated into a number of new interconnection and compensation arrangements that deviate from both traditional telecommunications and Internet carriage models. This paper will identify instances where price and quality of service discrimination benefits and harms consumers.

In This Issue: Views from Above and Below

An interesting array of articles in this issue provides both high-level and on-the-ground perspectives on how policy and particulars interact to affect health. Two articles identify novel risk factors. Chou and colleagues use a nationwide database to discover that sleep apnea more than doubles the risk of subsequently developing panic disorder.1 Using a nationally representative database, Skeldon et al find that erectile dysfunction, already known to be a marker for future cardiovascular disease, doubles the odds of having undiagnosed diabetes.2 For an average middle-aged man, the probability of undiagnosed diabetes jumps from 1 in 50 to 1 in 10 in men with erectile dysfunction. A nationally representative study of women aged 28 to 84 years examines sexual activity and satisfaction in mid-life and older women.3 Among older women who are sexually active, sexual satisfaction is not related to age, but to higher relationship satisfaction, better communication, and higher importance placed on sex. Bupropion, a drug with a favorable side-effect profile that often is helpful in treating depression and for quitting smoking, also has abuse potential, mimicking crack cocaine or amphetamines when crushed and snorted or injected. Steele and colleagues find evidence of a dramatic increase in duplicitous prescriptions for bupropion in Ontario between 2000 and 2013, suggesting a need for prescribing vigilance against growing misuse.4 A mixed methods study explores barriers to implementing HPV vaccinations.5 Tailoring counseling strategies and tracking/distributing patient reminders are among the challenges faced by primary care clinicians. Using data from a novel policy experiment and a network of community health centers, Bailey and colleagues find that patients randomly assigned to apply for Medicaid use a wider variety of services than do uninsured patients, suggesting the need for growing support of primary care for the underserved.6 Another policy analysis finds that compensation arrangements are similar for primary care physicians in and outside of accountable care organizations, but physician compensation by salary is higher in practices that bear at least some financial risk. The many evolving payment changes represent a large, uncontrolled experiment worthy of ongoing evaluation.7 A special report form Tiperneni et al proposes using lessons from community-oriented primary care to move from the current narrowly health care–focused accountable care organizations toward “accountable communities for health” that address health from a community perspective that includes the total investment in health across all sectors.8 This approach is more inclusive of the diverse determinants of health, and thus has much greater potential to improve population health than that of current accountable care organizations. An unintended consequence from a well-meaning and evidence-based clinical guideline change is examined by Ruffin et al in a study featured in Annals Journal Club.9 The authors find a dramatic reduction in chlamydia screening among young women after guidelines changed recommend beginningcervical cancer screening at age 21.10 Another study is interesting because it brings together both patient and staff experiences in primary care for people with chronic illnesses and either no insurance or Medicaid. Both patients and staff members highly value personal relationships, but find information flow and misaligned goals and expectations to be challenges.11 A research brief describes the development and validation of online medical database search filters to identify research studies of relevance to family medicine. Two filters balance specificity and sensitivity.12 A series of insightful essays make real the importance of access and relationships for health care and health,13 the value of openness to teachable moments,14 and the potential of integration into primary care to make genomic medicine helpful to patients.15 We welcome your reflections at AnnFamMed.org.