Incentive Compensation Research Articles

Female directors and employment stability: A longitudinal analysis of the roles of ultimate owners and managers’ incentive compensation

Female directors and employment stability: A longitudinal analysis of the roles of ultimate owners and managers’ incentive compensation

Analyst coverage, executive compensation and corporate risk‐taking: Evidence from property–casualty insurance firms

AbstractUsing an exogenous drop in analyst coverage introduced by broker closures and mergers, we test for the causal impact of analyst coverage on corporate risk‐taking, in an opaque industry. We document an increase in risk using several book‐based and market‐based risk measures, including tail and default risk measures. Results are driven by firms with stronger managerial risk‐taking compensation incentives. The increase in risk is stronger in more opaque firms, and firms with weaker policyholder monitoring. Firm risk increases through at least one risk‐taking action, such as investing firm assets in higher‐risk bonds. Our study highlights the importance of stock analysts in affecting corporate risk‐taking, especially in the presence of stronger managerial, compensation risk‐taking incentives.

Executive compensation incentives, innovation openness and green innovation: evidence from China's heavily polluting enterprises

PurposeA green innovation strategy is an important step for enterprises to balance economic and environmental. As the executors of strategic decisions, the attitude and capabilities of senior managers determine the effectiveness of implementing green innovation. Therefore, this paper aims to explore the relationship between executive compensation incentives and green innovation.Design/methodology/approachBased on the data of heavily polluting enterprises listed in China's A-share market from 2015 to 2020, this study constructs an OLS model with fixed effects of time and industry, and uses the mediation three-step method to verify the correlation between executive compensation incentives, innovation openness and green innovation. Meanwhile, the grouping regression was used to test the moderating effect of environmental regulation on executive compensation incentives.FindingsThe empirical results show that executive salary incentives promote green innovation and equity incentives inhibit green innovation; the openness breadth partially mediates the relationship between salary incentives, equity incentives and green innovation, while the openness depth only partially mediates the relationship between equity incentives and green innovation; and environmental regulation positively moderates executive incentives.Research limitations/implicationsDue to sample selection and variable measurement, the study lacks certain generality. Therefore, future research needs to further analyze the internal factors affecting green innovation from multiple dimensions.Practical implicationsThis study provides a new evidence for analyzing how executive compensation measures affect green innovation, and further enhances the mediating mechanism of open innovation.Originality/valueThis study has significant theoretical implications for examining the intra-firm factors that affect green innovation.

An empirical study from Chinese energy firms on the relationship between executive compensation and corporate performance

Purpose: This study investigates the relationship between executive compensation and firm performance in Chinese new energy companies.
 Design/Methodology/Approach: The financial data of 122 Chinese-listed energy companies from 2010-2021 is selected for the empirical study.
 Findings: Executives' monetary compensation and executives' shareholding ratio are positively related to corporate performance. Overseas background and financial background play a moderating role in the effect of executives' monetary compensation and their shareholding ratio on corporate performance.
 Conclusion: The fact that executives' salaries and shareholding both have a significant positive impact on business performance demonstrates the effectiveness of pay incentives and equity-based incentive. The research additionally demonstrates that an executive's financial knowledge and experience in other countries alter the impact of cash and equity pay on company performance.
 Research Limitations/Implications: The research excludes a large number of key energy businesses, especially rising ones in the clean energy sector, as it solely targets publicly traded businesses for ease of data collection.
 Practical Implications: The survey results help to further understand the key factors of compensation incentives for managers in energy companies and are informative for the effectiveness of compensation incentives in energy companies.
 Contribution to Literature: This study provides empirical results on the impact of managerial compensation on firm performance in energy firms in the Chinese context, adding a new step to the existing literature.

Environmental governance, executive incentive, and enterprise performance: Evidence from Chinese mineral enterprises

The goal of China's development by 2035 is the widespread formation of green production and lifestyle. Enterprise is the most crucial micro subject in realizing a fundamental improvement in the ecological environment. However, corporate environmental governance has typical externalities regarding corporate profitability, especially for mining companies. This paper explores the relationship between enterprise environmental governance and enterprise performance from multi-dimensions based on the manually-collected microdata of 194 listed enterprises in the mining industry in Shanghai and Shenzhen A-shares from 2010 to 2016 (the corporate environmental data is provided up to 2016). This study's findings are as follows. (1) Enterprise environmental governance facilitates short-term enterprise performance, which verifies the “Porter hypothesis.” (2) The five sub-dimensions of enterprise environmental governance have an “enhancing effect” on short-term enterprise performance and a “decreasing effect” on long-term enterprise performance. (3) Moderating effect analysis shows that “executive compensation incentive” leads enterprise environmental governance to improve long- and short-term enterprise performances. In contrast, “equity incentive” inhibits its effect on short-term enterprise performance. (4) Environmental governance in state-owned enterprises significantly contributes to short-term performance. In non-state-owned enterprises, it significantly reduces long-term enterprise performance. Finally, corresponding policy implications and future research directions were recommended. Future initiatives must strengthen incentives for green innovation, accelerate the substitution of new energy sources, promote the green and digital transformation of mining enterprises, and improve carbon finance in the carbon market.

Pressure, state and response: configurational analysis of organizational resilience in tourism businesses following the COVID-19 pandemic crisis

Organizational resilience is key for tourism companies in coping with crises; however, little is known about how tourism companies can become more resilient. Furthermore, much of the empirical evidence in the extant literature comes from developed countries. The study identifies key factors affecting organizational resilience based on a “resource–capacity-relationship” theoretical framework, incorporating the number of COVID-19 cases as an external factor in the stress-state-response (PSR) model, with the epidemic as pressure, corporate governance, and redundant resources as the enterprise state, and CSR performance as the response. The fsQCA method was used to analyse the interaction and joint effects among multisource influencing factors such as pressure, state and response. Based on an empirical analysis of 35 listed tourism companies in China from 2010 to 2020, the research found the following: (1) Four groupings of high organizational resilience: redundant resource deficit under epidemic pressure with high pay incentive compensation, low financial risk, and CSR driven under low epidemic pressure, resource deployment and CSR driven under low financial risk and CSR driven under low financial risk. Of these, CSR at the response level as a core condition is key to developing high organizational resilience. (2) Corporate governance capabilities play a high role in fostering organizational resilience under epidemic pressure and can compensate for organizational deficiencies in resources and relationships. (3) Under specific objective endowment conditions, unabsorbed redundant resources and absorbed redundant resources can substitute to some extent for deficiencies in capabilities and relationships. (4) The low organizational resilience configurations suggest that potentially redundant resources may be the key to low organizational resilience. CSR is not the ‘golden key’ to organizational resilience but is influenced by redundant resources. Furthermore, the key variables affecting organizational resilience were significant during the studied period. The research provides a theoretical reference and practical guidance for the sustainable development of tourism enterprises in the context of major public health crises.

The Differential Moderating Effect of Executive Compensation on Innovation Investment and Cash Holding Value in China

In the context of technological innovation promoting the long-term sustainable development of enterprises, how to better motivate senior executives to create greater value for an enterprise is being widely discussed. In particular, the COVID-19 outbreak has raised concerns about whether companies can deliver more value by holding large amounts of cash. However, although scholars have conducted a lot of research on topics such as innovation and firm value, how differentiated executive compensation incentives regulate the relationship between firm innovation and the value of cash holdings has hardly been explored. This paper selects the balanced panel data of 1470 A-share listed companies from 2012 to 2020 in China to explore the relationship between innovation investment, executive compensation, and the value of cash holdings. It is found that innovation investment has a positive impact on the value of the cash holdings. Based on Herzberg’s hygiene motivational factors, different types of executive compensation may have a hygiene effect or a motivational effect, which is different. As a result, the moderating effect of executive compensation on innovation investment and the value of cash holdings are significantly different. Executive equity compensation and in-service consumption are motivational attributes. They have a positive moderating effect on innovation investment and the value of cash holdings. The moderating effect of executive monetary compensation on innovation investment and the value of cash holdings changes with the change in monetary compensation. When monetary compensation is lower than the threshold value, monetary compensation is reflected as a hygiene attribute, so it has no significant positive moderating effect on innovation investment and the value of cash holdings. When monetary compensation is higher than the threshold value, monetary compensation is reflected as a motivational attribute, so it has a significant positive moderating effect on innovation investment and the value of cash holdings. Meanwhile, it is tested that monetary compensation is not manipulated by executive compensation defense behavior when it is reflected as motivational attributes.

Does budget target setting lead managers to engage in unethical behavior for the organization?

Recent accounting and management research findings suggest that unethical behavior in organizations can be normalized as a result of management control processes, such as performance evaluations and incentive compensation, and as a result of actions that attempt to serve the organization, such as unethical pro-organizational behavior. We investigate the relationship between budget target setting, which is widely used as a management control practice, and managers' willingness to engage in unethical pro-organizational behavior (WUPB). For our analysis, we used data from a web-based survey of 450 managers in the marketing and sales departments of Japanese firms. We find that (1) there is an inverted U-shaped relationship between budget target difficulty and WUPB, (2) a positive correlation exists between budget target difficulty and flexibility, and budget target difficulty also affects WUPB through budget target flexibility, and (3) differences in managers' influence on budget target setting change the path of influence of budget target difficulty on WUPB. The results suggest that unethical behavior for the organization may result from budget targets set to maximize performance or set flexibly to suit the business environment and the process of achieving them.

Institutional investors’ monitoring attention, CEO compensation, and relative performance evaluation

This paper examines whether the monitoring attention of institutional investors can influence CEO compensation. We find that higher motivated monitoring institutional ownership (IO) is associated with higher pay-performance-sensitivity of CEO compensation. Further, we find that only institutional investors with very high monitoring attention can positively affect the pay-performance-sensitivity. Finally, we document that CEO pay-performance-sensitivity is more, if not only, related to the unsystematic component of corporate performance in firms with higher monitoring IO. Collectively, our findings support the argument that firms with more monitoring IO provides more incentive compensation contract

The incentive role of media companies' executive compensation system in transformation and upgrading: Evidence from listed media companies in China.

Media companies in various countries are transforming and upgrading to improve their competitiveness in the digital economy. However, existing research only focuses on the issue of how media companies transform while ignoring whether internal governance mechanisms such as compensation incentives can promote corporate value during the transformation process. According to the principal-agent theory, we examined the incentive effects of the executive compensation system in terms of monetary compensation, equity compensation, and perks in a sample of Chinese media companies in the process of transformation and upgrading. The results have revealed that monetary compensation does not have a significant incentive effect, and equity compensation and perks have an incentive effect when they are in the suitable range. Based on the results, we proposed policy recommendations from three aspects: monetary compensation, equity compensation, and perks. This study complements the research content on the executive compensation system in media enterprises' transformation and upgrading. It can provide a reference for setting the administrative compensation system for media companies in China and other emerging economies.

Estimating financial compensation and minimum guaranteed charge for vehicle-to-grid technology

Electric vehicles (EVs) can play an ancillary role in energy and electricity system management. Vehicle-to-Grid (V2G) technology allows EV batteries to be discharged back into the grid. This technology enables charging when electricity prices are low and there is abundance of electricity in the grid and discharging when electricity costs are high and there is high load in the grid. The current study estimates the combination of financial compensation (FC) incentives (reduction in monthly electricity bill) and minimum guaranteed charge (MC) that would be needed to increase the acceptance of V2G technology among Norwegians. Estimating a multi-equation econometric model, we investigate how socioeconomic, geographical, and psychological exogenous variables predict the level of FC and required MC, as well as the relationship between FC and MC. We found that there is a mutual and negative relationship between FC and MC. Based on the MC-FC economic relationship, the V2G system is more likely to be accepted by older people, people who perceive the V2G system as more useful, people who have EV experience, and individuals with a higher level of trust in the V2G system. The group with strong trust in V2G demands less FC for a given value of MC. When MC is reduced, younger age groups (18–22) are more likely to demand higher FC. Our estimations also show that people demand an average reduction in electricity bills of 144 USD (72% of the average monthly electricity bill) as compensation for V2G investment while they would also use V2G if their electric car’s battery had a minimum level of 71% power. Monetary incentives based on socioeconomic status, options in the interface allowing the user to easily override the standards, and trusted methods of calculating the revenue may be considered in order to reduce financial expectations and concerns regarding minimum battery charges.

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.

Research on the Relationship Between Executive Compensation and Corporate Performance

In the modern fast-growing market, enterprises need to have keen insight and steady decision-making ability to adapt to the changing market environment and make corresponding adaptive changes, so as to better grasp the maintenance and development path of enterprises. In this process, senior managers play an important role and bear an important responsibility. This paper focuses on the relationship between executive compensation and corporate performance, and take the core competitiveness into consideration. This paper selects 424 A-share listed companies from 2016 to 2020 as the research object for research. We draw the following conclusions: (1) The promotion of executive compensation incentive can promote the improvement of enterprise performance; (2) Core competence has a significant mediating effect between executive compensation and corporate performance. Through this study, it is found that the correlation between the two and the role of core competitiveness are helpful for enterprises to make corresponding salary structure adjustment and give full play to the enthusiasm of executives; On the one hand, it can ensure the good operation of enterprises, on the other hand, it can avoid the stimulation of social class contradictions.

R&D expenditures and CEO compensation policy: The effect of corporate control and market competition on managerial opportunism

AbstractChina and Taiwan (so‐called Greater China) are representative of two of the fastest‐growing economies in the Pacific Rim region. This study uses Taiwanese high‐tech firms as sample and explores whether boards of directors attempt to avoid opportunistic reductions in research and development (R&D) investments by CEOs. This study considers a scenario in which high‐tech firms face a small earnings decline or a small loss but their CEOs could opportunistically cut R&D investments to improve financial results. The focus of this study is to examine how corporate control (whether or not a firm is controlled by a family) and market competition affect the relationship between R&D investments and CEO compensation schemes. Overall, we find that the stock‐based incentive compensation is more effective than the cash compensation in deterring managerial opportunism. In non‐family firms, we find there exists a positive significant relationship between changes in R&D expenditures and changes in CEO stock‐based compensation when a firm is faced with a small earnings decline or a small loss. Specifically, compared to family firms, the boards of directors of non‐family firms face more severe agency problems (as a result of the separation of ownership and control) and therefore tend to significantly adjust the incentive components in CEO compensation schemes to deter managerial opportunism. Regarding the effect of market competition, we find that incentives to adjust compensation plan to remove CEOs from opportunistically reducing discretionary R&D investments are greater in firms facing more intense market competition.

Clawback policy enforcement: To disclose or not to disclose

The SEC proposed in 2015 to require the disclosure of incentive compensation recovery efforts by companies' boards of directors. While such disclosure of enforcement can signal the effectiveness of corporate governance as the SEC suggested, firms have argued that the proposed enforcement disclosure may harm executives' reputation regardless of their involvement in misstatement because the clawback includes a no-fault clause. Results of our experimental study suggest that when the board does not disclose its clawback enforcement, investors perceive weak corporate governance, particularly when a restatement results from an intentional misstatement. This, in turn, leads investors to be less willing to invest than when clawback enforcement is disclosed. We also find that investors' perception of management reputation is not negatively affected following the board's clawback enforcement disclosure. Overall, our study provides insights into the potential effect of the SEC's proposal requiring the disclosure of clawback enforcement and addresses concerns raised in comment letters.

Impacts of environmental uncertainty on degree of enterprise financialization and the moderating role of executive incentives

This study takes the panel data of China’s A-share listed companies from 2016 to 2020 as the sample to empirically analyze the impact of environmental uncertainty on the degree of corporate financialization, and the moderating role of executive incentive in affecting the relationship between environmental uncertainty and the degree of corporate financialization. It is found that the rise of environmental uncertainty aggravates the degree of enterprise financialization. Executive equity incentives alleviate the degree of corporate financialization and significantly hedge the effect of environmental uncertainty on the degree of corporate financialization. In contrast, executive compensation incentives exacerbate the degree of corporate financialization and do not observably hedge the effect of environmental uncertainty on the degree of corporate financialization. Subgroup regressions indicate that the moderating effect of equity incentives on the relationship between environmental uncertainty and corporate financialization mainly occurs in non-state-owned firms. The findings of this study provide a theoretical base for firms to develop reasonable and practical incentive mechanisms to cope with environmental uncertainty.

The impact of corporate digital strategic orientation on innovation output

Given the development of the digital economy, the shift to digitalization is an inevitable direction for corporate strategic planning. This empirical study investigates the impact of corporate digital strategic orientation on innovation output. It also examines the moderating effects of executive equity and compensation incentives on the relationship between corporate digital strategic orientation and innovation output. We selected a sample of Chinese listed companies and adopted the Heckman two-stage and two-stage least square (2 S LS) methods to control for potential endogenous problems. Our findings indicate that corporate digital strategic orientation significantly enhances innovation output. Additionally, we found that executive compensation and equity incentives positively moderate the impact of corporate digital strategic orientation on innovation output, with equity incentives having a greater moderating effect than compensation incentives. Further analysis shows that the impact of corporate digital strategic orientation on innovation output is greater in non-manufacturing industries and non-state-owned enterprises. Our study provides policy insights on how companies can enhance their innovation capability in the digital economy.

English

This study specifically the impact of five HRM practices: recruitment and selection, salary and welfare, job evaluation, training and development and organization performance, on employees’ commitment. A sample of 300 employees in SMEs in Bac Ninh province was surveyed regarding their practices in these areas. The result provides empirical support that recruitment and selection, salary and welfare, job evaluation, training and development and organization performance have positive effects on Bac Ninh SMEs employees’ commitment, with incentive compensation having the greatest impact.

Delegation and Managerial Misreporting: The Role of Incentive Compensation Scheme and Trust in Superior

This study investigates determinants of managers’ misreporting behaviour. Misreporting in this study is defined as managers’ action of withholding or misrepresenting information to their superior for their own benefit. Specifically, this study examines the relationship between delegation of decision rights and incentive compensation scheme on manager’s misreporting behaviour. Furthermore, this study examines the mediating role of incentive compensation scheme on the relationship of delegation of decision rights on manager’s misreporting behaviour. In addition, this study explores the potential informal control of trust in superior in deterring delegated managers engaging in misreporting behaviour. The results from a survey of 145 managers who reside in U.S. show that delegation of decision rights affect manager’s misreporting behaviour directly and indirectly through incentive compensation scheme. Moreover, the results show that trust in superior negatively moderates the relationship between delegation of decision rights and manager’s misreporting behaviour, indicating that high trust in superior can be used as informal control to deter managerial misreporting behaviour.

A study on how to link OKRs model with incentive compensation

As an emerging tool of Management by Objectives, the Objective-Key Results (OKRs) model has been widely used in management practice in recent years; however, the academic community has not reached a consistent conclusion on whether OKRs should be linked to incentive compensation. The author argues the benefits of the linkage in terms of the common ground of the two concepts, the importance to employees' sense of fairness, and the strengthening effect on key indicators. From a practical point of view, the author believes that OKRs need to take advantage of KPIs in the process of application, using employees' personal KPIs as the basis for determining goals and employees' self-evaluation and score correction as indicators to measure the degree of completion, and the combined KPI+OKR model formed will be able to realize the linkage with incentive pay and play an important reference role in employees' future merit evaluation and promotion. Therefore, this paper proposes a scheme by elaborating the theory, focusing on two aspects, namely goal setting and result measurement, to optimize and improve the operation process of OKRs; and supplemented with practical cases to fully illustrate the promotion of OKRs to employees' initiative and the guiding effect of OKRs on employees' self-growth.