Incentive Compensation Research Articles

Shareholder orientation, stakeholder orientation, and new product introductions

ABSTRACT A dominant stream of research has linked a firm’s innovation capacity to its shareholder orientation, concerning how effectively internal corporate governance mechanisms maximise shareholder wealth and sustain competitive advantages. The main mechanisms involve independent board monitoring and incentives alignment, pertaining to how managers are monitored through shareholders’ surveillance and bonded with compensation structures to adopt risky innovation strategies, respectively. However, firms are mandated to engage with both shareholding and non-shareholding groups such that firms simultaneously pursue shareholder and stakeholder orientation through corporate social performance. Strikingly, extant research has analysed the effects of shareholder and stakeholder orientations on innovation on a separate basis. The present paper integrates multiple corporate orientations to provide a more comprehensive framework of the antecedents of firms’ product innovation. Specifically, the study not only examines the main effects of independent monitoring and incentives alignment, but also the synergistic effect of corporate social performance and the former mechanisms on the rate of new product introductions. Empirical results indicate that corporate social performance alleviates the negative effects of independent monitoring on the rate of new product introductions. In addition, corporate social performance alleviates the negative effects of short-term incentive compensation and the rate of new product introductions. Findings suggest that as businesses are currently required to both use a host of governance mechanisms to resolve agency problems and to enhance competitiveness via new product introductions, a strong stakeholder orientation mitigates the trade-offs that a narrow pursuit of shareholder orientation imposes on firm innovativeness.

Physician Compensation Arrangements and Financial Performance Incentives in US Health Systems

Public and private payers continue to expand use of alternative payment models, aiming to use value-based payment to affect the care delivery of their contracted health system partners. In parallel, health systems and their employment of physicians continue to grow. However, the degree to which health system physician compensation reflects an orientation toward value, rather than volume, is unknown. To characterize primary care physician (PCP) and specialist compensation arrangements among US health system-affiliated physician organizations (POs) and measure the portion of total physician compensation based on quality and cost performance. This study was a cross-sectional mixed-methods analysis of in-depth multimodal data (compensation document review, interviews with 40 PO leaders, and surveys conducted between November 2017 and July 2019) from 31 POs affiliated with 22 purposefully selected health systems in 4 states. Data were analyzed from June 2019 to September 2020. The frequency of PCP and specialist compensation types and the percentage of compensation when included, including base compensation incentives, quality and cost performance incentives, and other financial incentives. The top 3 actions physicians could take to increase their compensation. The association between POs' percentage of revenue from fee-for-service and their physicians' volume-based compensation percentage. Volume-based compensation was the most common base compensation incentive component for PCPs (26 POs [83.9%]; mean, 68.2% of compensation; median, 81.4%; range, 5.0%-100.0% when included) and specialists (29 POs [93.3%]; mean, 73.7% of compensation; median, 90.5%; range, 2.5%-100.0% when included). While quality and cost performance incentives were common (included by 83.9%-56.7% of POs for PCPs and specialists, respectively), the percentage of compensation based on quality and cost performance was modest (mean, 9.0% [median, 8.3%; range, 1.0%-25.0%] for PCPs and 5.3% [median, 4.5%; range, 0.5%-16.0%] for specialists when included). Increasing the volume of services was the most commonly cited action for physicians to increase compensation, reported as the top action by 22 POs (70.0%) for PCPs and specialists. We observed a very weak, nonsignificant association between the percentage of revenue of POs from fee for service and the PCP and specialist volume-based compensation percentage (r = 0.08; P = .78 and r = -0.04; P = .89, respectively). The results of this cross-sectional study suggest that PCPs and specialists despite receiving value-based reimbursement incentives from payers, the compensation of health system PCPs and specialists was dominated by volume-based incentives designed to maximize health systems revenue.

Incentives for Green and Low-Carbon Technological Innovation of Enterprises Under Environmental Regulation: From the Perspective of Evolutionary Game

Encouraging enterprises to adopt green and low-carbon technological innovation is an important measure to cope with climate change and achieve low-carbon economic development. As the main stakeholders of green and low-carbon technological innovation of enterprises, what measures should the government and the public take to encourage green and low-carbon technological innovation of enterprises has become one of the focuses of research. This study constructs a tripartite evolutionary game model among the government, the public, and enterprises and then obtains the evolutionary stability strategy by analyzing the replication dynamic equation of each subject. Numerical simulation is made on the evolution path of the game under different enforcement intensities of environmental regulation means. The result shows that pollution tax, low-carbon technology innovation subsidy, and environmental protection publicity and guidance are three environmental regulation means to effectively stimulate enterprises’ green and low-carbon technology innovation. And moderate pollution tax, low-intensity publicity of public environmental protection, and high innovation incentive compensation have the highest incentive efficiency for enterprises’ green and low-carbon technological innovation. Targeted suggestions for promoting green and low-carbon technological innovation of enterprises are put forward in the end.

Earnings management and asymmetric sensitivity of bonus compensation to earnings for high-growth firms

In this paper, we examine whether high-IOS (investment opportunity set) firms vis-à-vis non-growth (low-IOS) firms will not reduce discretionary expenditures, such as advertising expenses, research and development, and SG&A (selling, general and administrative) expenses, to further sustain the firm growth in a more conservative reporting environment (the post-Sarbanes-Oxley (SOX) period). We also investigate, as an extension of a prior paper, the sensitivity of CEO bonuses to earnings in the cases of high-IOS and low-IOS firms. We find a stronger association between incentive compensation and asymmetric sensitivity of bonus to earnings for high-IOS firms in the pre-SOX period, and this asymmetric sensitivity disappears even for high-IOS in the post-SOX period. As in a prior study, we also look into whether accounting conservatism is stronger in the post-SOX period for both high-IOS and low-IOS firms than in the pre-SOX period. The findings are consistent with our hypotheses that high-IOS firms vis-à-vis low-IOS firms will not reduce discretionary expenditures, asymmetric sensitivity bonus to earnings disappears in the post-SOX period for both high-IOS and low-IOS firms, and that accounting conservatism for both high-IOS and low-IOS firms are stronger in the post-SOX period. The documented evidence in this study shows how regulatory changes affect both accrual and real earnings management behaviors, how those regulatory changes affect the sensitivity of bonus compensation to earnings, and how accounting conservatism affects bonus compensation changes in the post-SOX period in relation to the pre-SOX period for both high-IOS and low-IOS firms

A commitment to change? CEO pay and alignment with environmental, social, and governance objectives

In the 2019 Business Roundtable “Statement on the Purpose of a Corporation”, over two hundred executives committed to expanding the focus of their respective corporations beyond shareholder primacy. Following advice from agency theory, compensation committees traditionally seek to align executive pay with desired organizational outcomes. Our qualitative study examines whether the signatories made discernible changes to executive compensation structures to align executive incentives with a broader stakeholder view. We observe the compensation committee reports of 135 signatory firms’ proxy statements for the fiscal year ending 2020, to identify whether each firm’s incentive compensation structure included measures aligned with the firm’s commitment to a stakeholder focus. Nearly half of the sample firms continued to reward executives exclusively using measures to assess financial objectives, although thirteen made promises to include stakeholder corporate performance measures in their 2021 compensation programs. Although most leaders say they act in all stakeholder interests, we do not find evidence that these leaders are incentivized to implement the strategic and organizational changes to ensure their firms consider the environmental, social, and sustainable implications of their decisions. Future research should follow these firms’ financial performance to observe strategic consequences to action versus inaction to change.

Effects of option incentive compensation on corporate innovation: Evidence from the Chinese market

Effects of option incentive compensation on corporate innovation: Evidence from the Chinese market

Incentive Effect of Executive Compensation under the Reform of State-Owned Enterprise System——Empirical Research

The special characteristics of state-owned enterprises (SOEs) among group enterprises make the status of their executive compensation and incentive mechanisms a hot issue of academic interest. This study selects a sample of 653 domestic SOEs in China from 2010 to 2020, classifies them into four categories of SOEs: commercial, public welfare, central, and local, based on the perspective of SOE system reform, and conducts regression analysis using a fixed-effects regression model to explore the effect of executive compensation incentives in SOEs under mixed ownership reform. It is found that the pay incentives for executives of SOEs are conducive to the improvement of the comprehensive performance assessment indexes of the enterprises, accompanied by the reduction of the agency costs of the enterprises. Further research finds that there are disparities in the pay of executives of SOEs of different natures, and the effects of pay incentives also have different effects. Based on the current situation of SOE executives’ remuneration, the impact of executives’ remuneration incentive effect on the performance and cost of SOEs is quantified and analyzed, to enlighten the study of SOE executives’ remuneration incentive effect and find a realistic way of thinking to understand SOE executives’ remuneration incentive effect under the socialist environment with Chinese characteristics.

Foreign Institutional Investors and Executive Compensation Incentives: Evidence from China

Foreign Institutional Investors and Executive Compensation Incentives: Evidence from China

Do intangibles matter for corporate policies? Evidence from organization capital and corporate payout choices

Organization capital represents the stock of knowledge, capabilities, culture, and business processes, and systems that integrate human skills with physical capital to enhance organizational efficiency. We investigate whether and how a firm's payout choices are related to its level of organization capital. Using a large sample of U.S. firms during the period 1980–2017, we find that both the likelihood and the levels of cash dividend distribution and share repurchases are significantly higher for firms with more organization capital. Our findings hold up to a battery of robustness checks and endogeneity tests. We further explore related channels and find strong evidence that the positive association between organization capital and dividend payments (share repurchases) is largely attributable to agency problems (executive compensation incentives). We find weak evidence for the signaling argument for corporate payouts. Overall, we document that organization capital plays a central role in shaping corporate payout choices.

How did the Sarbanes\u2013Oxley Act affect managerial incentives? Evidence from corporate acquisitions

We examine the impact of incentive compensation on the riskiness of acquisition decisions before and after the passage of the Sarbanes–Oxley Act (SOX). Before SOX, equity-based compensation was positively related to changes in risk around acquisition decisions, but this relationship weakened after the introduction of SOX. The drop in post-SOX acquisition-related risk stems from how managers respond to compensation-based incentives in the new regulatory environment. We show that executive stock options and pay-risk sensitivity drive post-SOX managerial responsiveness to risk-taking incentives. We also document a post-SOX value-enhancing effect on long-term stock-price performance and total factor productivity through these same incentive compensation mechanisms. The results are robust to selection bias, simultaneity, measurements of risk, and the definition of incentive compensation.

Do Performance-Based Pay and Pay Competitiveness Moderate the Relation Between Lower-Level Employees Total Compensation and Job Satisfaction? Evidence from South Korea

Decades of international multidisciplinary studies have examined how compensation affects employees and organizations, but they neither specify the boundary conditions for employee job satisfaction nor differentiate the effects of pay on job satisfaction of employees at differing tiers within an organization. We explore whether performance-based pay and pay competitiveness moderate the relation between total compensation and job satisfaction among lower-level employees in South Korea. To investigate boundary conditions for that relation, we use performance-based pay and pay competitiveness as variables that tie compensation structure to job satisfaction. Drawing from data for 2,281 employees at 470 South Korean firms, we consider how two variables—incentive compensation and pay competitiveness—influence job satisfaction of lower-level employees. First, we confirmed a positive relationship between compensation and job satisfaction, and second, we found that the relationship is stronger among employees of firms where average compensation is below what is paid elsewhere.

Analysis on the Optimization Strategy of Human Resources Compensation Incentive

Analysis on the Optimization Strategy of Human Resources Compensation Incentive

Anti-corruption and CEO compensation: Evidence from a natural experiment in China

In emerging markets, the externality of political environment is an important factor affecting the design of agent contracts. However, few studies have studied political determinants of incentives in CEO compensation. This study utilizes an exogenous political shock in China (i.e., the investigations of the Central Commission for Discipline Inspection) to identify the causal effect of anti-corruption on CEO compensation by using firm-level data during 2000–2016 from China through a difference-in-differences method. By considering the reduction in corruption arising from the shock, we find that CEO compensation substantially increases. Channel analysis reveals that the anti-corruption campaign reduces the negative externalities of corruption and increases incentive efficiency in non-state-owned enterprises. In addition, the effect of the anti-corruption campaign on CEO compensation is particularly pronounced with firms exposing to high corrupt environment, inspection groups having high ability, and CEOs without political connections.

Compensation incentives and heat exposure affect farm worker effort.

Farm workers are exposed to high risk of heat-related illness, especially when their jobs require working outside at a fast pace during hot days. Climate change has increased the number of days with high temperatures, and thereby the amount of time that farm workers are likely exposed to extreme heat. To better understand how high heat exposure affects farm workers, this study investigates how crop workers respond to heat exposure and estimates the effects of different pay and work arrangements on workers’ responses to heat exposure. We explore, specifically, whether piece-rate arrangements increase workers’ effort during periods with high heat exposure compared to workers paid by hourly wages. We use observational data from detailed measurements of localized heat exposure and individual workers’ effort in the field. First, these results show workers adjust their effort in response to heat exposure when the heat exposure level changes. Second, piece-rate arrangements increase workers’ effort during work shifts. Third, piece-rate arrangements allow workers to modify their effort more easily during different heat exposure levels. When facing low levels of heat exposure, workers who were paid by piece-rate arrangements exert a higher effort than workers paid by hourly wages, up until WBGT is 26.6˚C. When facing high levels of heat exposure (with WBGT exceeding 29.6˚C), workers paid by piece-rate arrangements lower their effort compared to workers paid by hourly wage arrangements.

THE EFFECT OF EXECUTIVE INCENTIVES ON TECHNOLOGICAL INNOVATION OF DECLINING ENTERPRISES – THE MODERATING EFFECT OF DECLINE DEGREE AND ORGANISATIONAL SLACK

We examine the effects of different types of executive incentives on technological innovation of declining firms and the moderating effects of the degree of decline and organisational slack on executive incentives and enterprise technological innovation. We also assess the synergetic effects of different types of executive incentives on technological innovation of declining enterprises. We find the following: first, executive compensation incentive, equity incentive and control incentives are beneficial to promote technological innovation in declining enterprises. Second, the degree of decline negatively moderates the relationship between equity incentive and technological innovation. Third, organisational slack positively moderates the relationship between equity incentive and technological innovation, as well as the relationship between control incentives and technological innovation, especially for severely declining enterprises. Fourth, there are synergistic effects between executive control incentive and compensation incentive, control incentives and equity incentive on technological innovation. The contributions are as follows: first, taking declining enterprises as sample, we suggest that to increase the role of compensation incentive and equity incentive in promoting technological innovation in declining enterprises, the control incentives should be strengthened. Second, organisational slack should be fully exploited for severely declining enterprises so that executives should have the motivation and conditions to carry out technological innovation and further help declining enterprises to turnaround successfully.

A STUDY ON INDIVIDUAL CARBON TRADING MECHANISM BASED ON CARBON REDUCTION BONUS IN THE CONTEXT OF CHINA'S MOTOR VEHICLE RESTRICTION POLICY

In the context of the development of China's carbon emissions trading market, research into individual-based carbon trading markets is gradually gaining momentum. But due to the diversity of individual carbon emissions and the difculty of quantifying them, there are many challenges to realising a personal carbon trading market, and China has yet to develop a complete personal carbon trading system. Therefore, based on Beijing's tail number restriction policy, this paper designs a personal carbon trading market mechanism based on the carbon emissions generated by car use as a commodity, with a focus on trading mechanisms, and supported by incentive systems, regulatory systems and compensation systems. With the help of the "carbon reduction red envelope" trading platform to achieve the participation of two main bodies, multi-benet. The changes in carbon emissions under different scenarios are also analysed, and some of the conditions for the operation of the personal carbon trading mechanism proposed in this paper are calculated. The individual carbon trading mechanism proposed in this paper,solves the inconvenience caused by the license plate restriction policy to Chinese people, promotes the exible and systematic development of urban management, and provides ideas for the development of China's individual carbon trading market.

Executive compensation and corporate performance of energy companies around the world

This paper studies the relationship between executive compensation and corporate performance of global energy companies. Data from 121 listed energy companies from 2010 to 2019 were collected for empirical analysis. The results show that in the energy industry, executive compensation has a significant positive impact on corporate performance, which is consistent with agency theory, tournament theory and social network theory. In addition, we found that cash incentives are more useful than equity incentives for senior executives. Therefore, we recommend that energy companies establish a reasonable compensation incentive system to address agency issues in the sector.

External fairness of executive compensation, institutional investor and M&A premium

PurposeThis paper aims to study the impact of external fairness of executive compensation on M&A premium, and examine the moderate role of institutional investors. The high M&A premium is the main factors that induce the huge impairment of listed companies’ goodwill and the plummeting performance. Executives are the decision-makers of M&As, and their decision-making process is inevitably affected by the psychological factors. In recent years, institutional investors have become an important external force that can affect the governance of listed companies.Design/Methodology/ApproachThe authors use M&A data of listed companies from 2008 to 2018 and use OLS regression to test the relationship between executive compensation fairness and M&A premium.FindingsThe results show that the lower the external fairness of executive compensation, the greater the M&A premium. Institutional investors can effectively reduce the impact of external compensation unfairness on M&A premiums. The mechanism tests show that executives' psychological perception of fairness induced by external unfairness reduces their motivation to work and prompts them to use high premium to seek alternative compensation incentives. Further examinations of executive characteristics and corporate characteristics show that the role of external unfairness in executive compensation in driving M&A premiums is more pronounced in companies with longer executive tenure, weaker executive reputation incentives and private property.Originality/ValueThis paper enriches the research on the pre-factors of M&A premiums from the perspective of executives’ psychological perception of fairness, provides evidence that institutional investors play a positive governance role and provides decision-making references for companies to take corresponding measures to reduce M&A premium risks.

The Effect of Corporate Social Responsibility and the Executive Compensation on Implicit Cost of Equity: Evidence from French ESG Data

This research aimed to evaluate the effect of corporate social responsibility (CSR) and executive incentive compensation based on the achievement of sustainability goals on the implicit cost of equity. To test the study’s hypotheses, the authors applied linear regressions on panel data using the Thomson Reuters ASSET4 and Thompson Institutional Brokers Earnings Services (I/B/E/S) database of a sample of 154 French ESG firms over the 2015–2020 period. Our results show that CSR activities lower the cost of equity capital; hence, these activities are important to shareholders’ investment and financing decisions. The results have practical implications for investors and other partners interested in the business. Thus, using the implicit cost of equity is a better estimate of shareholder requirements in the context of socially responsible businesses. The results of this work could attract the attention of socially responsible investors and, especially, corporate citizens.

Compensation regulation and political promotion of executives of state-owned enterprises——Quasi-natural experiment based on the reform of compensation regulation in China

ABSTRACT Using a sample of listed state-owned enterprises in China from 2013 to 2018, this paper focuses on the impacts of compensation regulation policy on the changes of incentive mode for SOE executives. We find that after the policy, the compensation incentive channel for highly-paid executives has been replaced by political promotion as an alternative incentive mechanism. Further analysis shows that ingratiatory behaviour has become the main channel for SOE executives to seek promotion after the policy. Our results provide support for the relationship hypothesis relating to the political promotion of SOE executives, and such effects are more pronounced within younger SOE executives with lower enterprise level and marketisation degree. Finally, we find that the existence of alternative benefit acquisition channels such as equity incentive, perquisite consumption and the degree of mixed ownership reform of SOE has weakened the relationship between compensation regulation and political promotion of SOE executives.