Incentive Compensation Research Articles

Will companies take the initiative in green technology innovation? Empirical evidence from listed manufacturing companies in China

ABSTRACT Green technology innovation (GTI) is an important driver for national green development and a strong fulcrum for the clean production of companies. This paper focuses on the impact of top management team’s (TMT’s) inherent characteristics on GTI from the perspectives of TMT heterogeneity and text tone in management discussion and analysis (MD&A), as well as the moderating role of executive compensation incentives and financial constraints. The results reveal that: a) the TMT heterogeneity has different effects on companies’ GTI; b) the tone in MD&A can significantly promote the companies’ GTI; c) both executive compensation incentives and financial constraints significantly adjust the relationship between the TMT heterogeneity or the tone in MD&A on GTI but in different directions. Moreover, the basic conclusions suitable for non-state-owned companies yet differ in state-owned companies considering the property heterogeneity. Thus, this paper constructs a new integrated framework of TMT heterogeneity, tone in MD&A, executive compensation incentives and financial constraints to stimulate the enthusiasm and initiative of companies to develop GTI, which has an important practical significance on accelerating the sustainable development of green production in developing countries. Finally, this paper offers corresponding policy recommendations.

Foreign institutional investors and executive compensation incentives: Evidence from China

This study examines the effect of foreign institutional investors (FIIs) on executive compensation incentives. Using the quasi-natural experiment of Shanghai (Shenzhen)–Hong Kong Stock Connect, we show that the presence of FIIs has a positive effect on pay-for-performance sensitivity (PPS) and helps to decrease excessive compensation. We also demonstrate that good corporate governance and high accounting information quality would be two possible underlying channels. Our results are more pronounced for firms with fewer state-owned shareholders and powerful managers. Overall, our results indicate that compared with domestic counterparts, FIIs are more effective at improving firms’ executive compensation incentives.

The tone from above: Does tunnelling by ultimate owners impinge on the relations between managerial compensation and earnings management?

AbstractThis study aims to explore the impact of tunnelling by ultimate owners on the relation between managerial compensation and earnings management. Using a sample of the Chinese listed firms from 2009 to 2019, we find that tunnelling by ultimate owners leads to adjustments in pay‐performance sensitivity and impinges on the magnitude of earnings management. In private‐dominated firms, tunnelling by ultimate owners reduces pay‐performance sensitivity, and the decreased pay‐performance incentives do not motivate managers to inflate corporate profits by manipulating earnings information. Moreover, owing to managers' resistances, tunnelling does not generate more severe problems in the quality of earnings information. In state‐dominated firms, due to government regulation, tunnelling by ultimate owners does not induce significant adjustments in pay‐performance sensitivity. However, due to the strong motivation of managers delighting their superiors in the administrative hierarchy by adjusting financial reporting, the quality of earnings information of state‐dominated firms may be worse. Our results suggest that in firms with concentrated ownership structures‐irrespective of the nature of ownership, both the formulation and implementation of managerial compensation incentive programmes, and the magnitude of earnings management, are equilibrium results of a dynamic game between ultimate owners and managers.

The Economics of Deferral and Clawback Requirements

ABSTRACTWe analyze the effects of regulatory interference in compensation contracts, focusing on recent mandatory deferral and clawback requirements restricting incentive compensation of material risk‐takers in the financial sector. Moderate deferral requirements have a robustly positive effect on risk‐management effort only if the bank manager's outside option is sufficiently high; otherwise, their effectiveness depends on the dynamics of information arrival. Stringent deferral requirements unambiguously backfire. Our normative analysis characterizes whether and how deferral and clawback requirements should supplement capital regulation as part of the optimal policy mix.

Stock liquidity and director compensation

This study investigates how stock liquidity affects the compensation incentives faced by the directors on the board. The results show that the proportion of cash-based compensation in the directors' compensation package increases when the firm's shares are less liquid: a one standard deviation increase in the bid-ask spread from the mean is associated with a 3% larger fraction of cash in the directors' compensation package. The effect is more pronounced for firms whose management does not issue Earnings Per Share (EPS) guidance and for firms whose Chief Executive Officers (CEOs) themselves have higher pay in cash and lower pay in the form of equity. These results suggest the compensation incentives offered to directors in firms with illiquid shares result in the interests of shareholders being less aligned with those of the directors compared with firms with liquid shares.

Incentive Compensation Mechanism for the Infrastructure Construction of Electric Vehicle Battery Swapping Station under Asymmetric Information

Driven by the application and promotion of the electric vehicle battery swapping station (BSS), this paper addresses a key challenge in the BSS’s infrastructure construction, which is information asymmetry between the government and BSS. First, inspired by the insights of financial contracting, this study constructs the government’s capital allocation and compensation models for the BSS via the principal–agent approach. This paper is the first developing an incentive-compatible (IC) compensation mechanism for improving the operation of BSS in the presence of two kinds of asymmetric information (operation level and effort level). Next, this paper derives the government and BSS’s equilibrium strategies under two scenarios of symmetry and asymmetry information, respectively. Finally, this paper compares the equilibrium solutions obtained in the above two scenarios to verify the effectiveness of the allocation scheme and compensation mechanism. This paper finds that the capital allocation scheme and compensation mechanism proposed in this paper can incentivize the BSS to report its actual operation level and take the corresponding effort level. Moreover, the government and BSS’s underinvestment problems become smaller when the BSS’s operation level is relatively high. Several important managerial insights are derived based on our analytical and numerical results.

Addressing Shortages of Mental Health Professionals in U.S. Jails and Prisons.

Many jails and prisons in the United States do not have enough mental health professionals (MHPs) to meet the mental health needs of the people incarcerated in these facilities. This article examines strategies used to address MHP shortages in U.S. jails and prisons, including compensation incentives, telemental health services, interdisciplinary health care, flexible work schedules, and training rotations in correctional settings. These measures may help alleviate some of the shortages of MHPs in correctional facilities; however, these shortages will likely persist without broader policy reforms that decrease the size of U.S. correctional populations or increase the number of MHPs across the country.

Exploring the relationship between takeover market and enterprise innovation: The mediating role of internal governance

This study explores the relationship between the takeover market and enterprise innovation. We also investigate the mediating role of internal governance (managers’ compensation incentives, equity incentives, boards of directors, and large shareholders) on the relationship between the takeover market and enterprise innovation. We use comprehensive panel data of 1307 firms listed on the Shenzhen and Shanghai stock exchanges for 2006-2016 to meet the study's objectives. We find that the takeover market positively and significantly influences corporate innovation. It improves corporate innovation ability by increasing managers’ compensation incentives. However, enterprise innovation ability decreases with an increase in managers’ equity incentives, large shareholders, and the board of directors. Finally, this study recommends useful policy implications to increase enterprise innovation in the Chinese financial market.

Excess Value Created as a Performance Metric and its Determination Utilizing the <i>TEVA</i> Measure

The paper explores the excess value created (EVC) metric, which is an aggregated measure of the financial performance of a company over a multi-period measurement interval. The relevance of the study is due to the demand for practical solutions in the field of financial performance monitoring and incentive compensation, which makes it possible to achieve congruence between the interests of shareholders and the decisions of managers. The aim of the study is to build and justify a periodic financial measure that takes into account not only the current result but also the long-term consequences of management decisions. The scientific novelty of the study lies in the determination of the EVC metric via the TEVA indicator and providing the rationale for the new design of the performance measure. The result of the study is the derivation of formulas for calculating the EVC measure on multi-period and one-period intervals, which are free from restrictions on changes in the capital structure and the cost of capital, allow for a time-varying systematic risk of operating activities and possess the advantage of computational simplicity important for practical applications. The study concludes that the measurement of value created using the EVC indicator determined via TEVA makes it possible to achieve close conformity of the metric constructed to the real-world conditions with the unification of calculations in its retrospective and forecast components based on data available from historical and Pro Forma financial statements and information from the capital market.

Incentives For Workers As Intervening Variables On The National and Political Unity Agency (KESBANGPOL) Simalungun Regency

This study aims to determine the effect of emotional intelligence and work motivation on employee performance with incentives as intervening variables (Case Study on National and Political Unity Agency Employees, Simalungun Regency, Pematang Siantar City). The research method used is the quantitative data method. Data collection in this study was carried out by distributing questionnaires (questionnaires) to respondents. The results of this study are 1) The emotional intelligence (X1) variable has a positive and statistically significant effect on incentives (Z).2) The Variable Work Motivation (X2) has no positive or significant effect on Incentives (Z).3) Emotional intelligence (X1) has a significant effect on employee performance (Y). 4) Work Motivation (X2) has a significant effect on Employee Performance (Y). 5) Incentives (Z) have a significant effect on employee performance (Y). 6) The incentive (Z) is an intervening variable that mediates the effect of emotional intelligence (X1) on employee performance (Y).7 Incentive (Z) is an intervening variable that mediates the effect of work motivation (X2) on employee performance (Y). This shows that emotional intelligence (X1) and work motivation (X2) can explain the incentive (Z) of 88.9%. This shows that the Incentive (Z) Emotional Intelligence (X1) and Work Motivation (X2) can explain Employee Performance (Y) by 65.2%. The author suggests that human resources or employees should prioritize the quality of emotional intelligence in addition to their intellectual intelligence so that there is a balance in terms of achieving good performance. In order for employees' work motivation to increase, the National Unity and Political Agency of Simalungun Regency Pematang Siantar City should increase the level of persistence of employees by paying attention and developing skills in order to advance the agency and improve employee performance. The incentive compensation system that is implemented should generate benefits for both parties, namely the National Unity and Political Agency of Simalungun Regency, Pematang Siantar City, as the provider of incentive compensation, and employees.

Compensation Consultant Considerations Related to Equity Incentive Compensation Programs

Compensation consultants often advise private companies to use equity incentives to attract and/or retain employees. This practice has become common during recent periods of labor shortages and low unemployment rates. This discussion summarizes what compensation consultants need to know about taxation and security valuation issues related to private company equity incentive compensation programs.

Internal & External Pay Dispersion of Executives and Enterprise Innovation

Innovation is the source of sustainable development of enterprises. Therefore, its influencing factors have long received extensive attention from academia. This paper takes China's A-share listed companies from 2008 to 2017 as a research sample to examine the relationship between the internal & external pay dispersion of executives and corporate innovation. The results show that: the internal pay dispersion of executives promotes the innovation of the enterprise; the external pay dispersion of the executives inhibits the innovation of the enterprise; the external pay dispersion of the executives enhances the positive effect of the internal executive pay dispersion on the innovation of the enterprise. Further, it is found that compared with non-state-owned enterprises, the internal pay dispersion of state-owned enterprises has a smaller role in promoting the innovation of the enterprise, and the external pay dispersion of executives has a smaller inhibitory effect on the innovation of the enterprise. Executive power enhances the positive effect of the internal pay dispersion on the innovation of the enterprise, and also strengthens the inhibitory effect of the external pay dispersion on the innovation of the enterprise. The above research findings reveal the intrinsic relationship between executive compensation incentive policies and corporate innovation, and provide a theoretical reference for companies to establish efficient incentive mechanisms and promote corporate innovation and development.

Sustainable Development of Corporate Governance in the Hospitality and Tourism Industry: The Evolution and the Future

This study provides a systematic review of the content of the hospitality and tourism literature on corporate governance. The purpose of this study is to identify gaps in the existing research and practice context and to provide guidance for future research. Based on 174 peer-reviewed articles published since 2000, this paper employs a content analysis approach to identify eight major themes explored by scholars. The study found that most previous research on corporate governance mechanisms in tourism was conducted in developed regions and mostly used quantitative research methods. Shareholder governance, board governance, executive compensation incentives, social responsibility governance, reputation themes and corporate governance provisions received more academic attention than the themes of organizational structure governance and information disclosure. The systematic review in this paper helps to consolidate the existing literature and make recommendations to promote the field of corporate governance research in the hospitality and tourism industry and to provide a reference for the industry.

Growth opportunity and investment policy: The role of managerial incentives

Based on the neo‐classical theory of investment (Tobin's Q), this study looks at how growth opportunity drives investment policies and the extent to which this relationship is sensitive to managerial incentives. We use data from 213 non‐financial and non‐utility UK FTSE 350 firms for the period 2007–2015, generating a total of 1748 firm‐year observations. We uncover that growth opportunity firms invest more in fixed intangible assets but less in tangible capital assets activities. We further observe that the growth opportunity‐fixed intangible assets' investment is more sensitive to executive compensation incentives. Our results remain robust to alternative econometric models.

Research on the Impact of Listed Companies’ Incentive Policies on Corporate Social Responsibility

Based on research sample on Chinese A-share listed companies that have made social responsibility disclosures (CSR) during the period 2011-2018, this paper explores the impact of listed companies on the performance of CSR under different types of incentive policies. The research results show following: (1) the implementation of monetary compensation incentives for executives can promotes CSR, which means higher monetary compensation rewards for executives has a positive impact on CSR. (2) The company motivate executives with equity has week influence on CSR. (3) The better the salary incentive policy for ordinary employees, whether it is monetary compensation or equity compensation, the CSR will be better. (4) Further research shows when the expected effect of equity incentives for executive by a listed company is insignificant, it can be supplemented by employee equity incentives, which will help improve the company’s CSR. The research conclusions of this paper have a certain reference value for companies to improve the salary incentive system and the CSR.

An approach of flow compensation incentive based on Q-Learning strategy for IoT user privacy protection

In MCS (mobile crowd sensing), reducing network overhead, protecting IoT user privacy and increasing the participation enthusiasm of perception task are key issues. The QLPPIA (an incentive approach of flow offset based on Q-Learning algorithm for perception user privacy protection) was proposed. A system model that combined MCS with MEC (mobile edge computing) was designed. The edge center uploaded the perception results to the MCS cloud declining its cloud overhead. A privacy protection structure of attribute relevance based on Markov chain Monte Carlo was constructed, which can protect the privacy data. Perception outcomes with higher accuracy of attribute relevance were generated. An incentive pattern of flow offset for user privacy protection based on Q-Learning opportunistic cooperation transfer was designed to cut down MCS cloud flow offset cost and facilitate user enthusiasm. Compared with the existing private protection of high-dimensional attribute data, opportunistic relay perception incentive, and other solutions, the QLPPIA method improves the perception result precision by 27.06%, increases MCS cloud cost of 88.80%, and declines flow compensation expenditure at 19.03% on average.

Investigating the Relationship Between Entity Financialization, Managers' Incentives, and Enterprise's Innovation: Fresh Evidence From China.

The current study examines the relationship between financialization, managers’ incentives, and the enterprise’s innovation. Based on the principal-agent and incentive theories, this study proposes a research model with two management incentives as moderating variables between financialization and the enterprise’s innovation. First, we analyze the direct relationship between financialization and the enterprise’s innovation. Second, we examine the moderating effect of managers’ equity incentive and compensation incentives on the relationship between entity financialization and the enterprise’s innovation in high-tech/non-high-tech enterprises and state-owned and non-state-owned enterprises. This study covers the most recent updated data from both A-share listed companies in the Shenzhen and Shanghai stock exchange in China from 2009 to 2019. This study’s finding indicates a significant negative impact of entity financialization and the enterprise’s innovation. It means that the entity financial has a significant “crowding-out” effect on the enterprise’s innovation. This study also confirms that management incentives cannot effectively suppress a “crowding-out” impact of entity financialization on firm innovation because of the principal-agent severe problem in financialization. Finally, considering the heterogeneities of property rights and degrees of dependence on the enterprise’s innovation, a “crowding-out” effect of entity financialization on the enterprise’s innovation is more significant in high-tech and state-owned enterprises. Managers’ equity incentive significantly affects the enterprise’s innovation in high-tech enterprises, while the managers’ compensation incentive affects the enterprise’s innovation in state-owned enterprises. Our study could help the enterprise to improve the company manager’s incentive and provide the optimal assets allocation to improve the enterprise’s innovation ability. Lastly, this study provides significant policies and recommendations for the public sector high-tech enterprise and private sector high-tech enterprises. Moreover, policies and recommendations are fruitful for the public sector non-high-tech enterprise and private sector non-high-tech enterprise.

Research on the Correlation Between Real Earnings Management, Executive Compensation and Cost Stickiness

Based on the data of Chinese A-share listed manufacturing companies from 2018 to 2020, this paper systematically explores the influence mechanism of executive compensation incentive on the relationship between real earnings management and expense stickiness. The empirical results show that:(1) Chinese manufacturing enterprises’ real earnings management level is negatively correlated with cost stickiness;(2) Executive compensation is negatively correlated with cost stickiness;(3) Executive compensation of listed companies is negatively correlated with real earnings management;(4) With the increase of executive compensation, the negative correlation between real earnings management level and expense stickiness weakens.

Optimal Electricity Demand Response Contracting with Responsiveness Incentives

Demand response programs in retail electricity markets are very popular. However, despite their success in reducing average consumption, the random responsiveness of consumers to price events makes their efficiency questionable to achieve the flexibility needed for electric systems with a large share of renewable energy. This paper aims at designing demand response contracts that allow to act on both the average consumption and its variance. The interaction between a risk-averse producer and a risk-averse consumer is modelled as a principal–agent problem, thus accounting for the moral hazard underlying demand response contracts. The producer, facing the limited flexibility of production, pays an appropriate incentive compensation to encourage the consumer to reduce his average consumption and to enhance his responsiveness. We provide a closed-form solution for the optimal contract in the linear case. We show that the optimal contract has a rebate form where the initial condition of the consumption serves as a baseline and where the consumer is charged a price for energy and a price for volatility. The first-best price for energy is a convex combination of the marginal cost and the marginal value of energy, where the weights are given by the risk-aversion ratios, and the first-best price for volatility is the risk-aversion ratio times the marginal cost of volatility. The second-best price, for energy and volatility, is a decreasing nonlinear function of time inducing decreasing effort. The price for energy is lower (respectively, higher) than the marginal cost of energy during peak-load (respectively, off-peak) periods. We illustrate the potential benefits issued from the implementation of an incentive mechanism on the responsiveness of the consumer by calibrating our model with publicly available data.

CSR Performance, Executive Compensation Incentive and Innovation Investment of Chinese Private Enterprises under Dynamic Perspective

Based on social exchange theory, signal transmission theory and enterprise life cycle theory, this paper empirically analyzes the impact of CSR performance on enterprise innovation investment by taking the A-shares listed private enterprises in Shanghai and Shenzhen stock markets from 2009 to 2019 as research samples. At the same time, we pay attention to the moderating effect of executive compensation incentive, explore the dynamics of the influence mechanism in different life stages. The results show that: there is a significant positive correlation between CSR performance and enterprise innovation investment, that is, CSR behavior is conducive to the improvement of enterprise innovation investment intensity; Executive compensation incentive has a negative moderating effect on this relationship. The higher the incentive level of executive compensation, the weaker the positive impact of CSR performance on innovation investment. Further research shows that CSR performance affects innovation investment through the exchange of government resources and the promotion of market position, but the effects are different during the enterprise life cycle. Relevant conclusions enrich the theory and practice of CSR performance and enterprise innovation investment from the dynamic perspective, provide a theoretical basis for private enterprises to develop a reasonable and effective executive compensation incentive system.