Executive Cash Compensation Research Articles

Do Firms Use the Unrealized Gains Mandated by IFRS to Increase Executive Cash Compensation? Evidence from Family-Owned Property Companies in Hong Kong*

Do Firms Use the Unrealized Gains Mandated by IFRS to Increase Executive Cash Compensation? Evidence from Family-Owned Property Companies in Hong Kong*

The Effects of Fraud and Lawsuit Revelation on U.S. Executive Turnover and Compensation

This study investigates the impact of fraud/lawsuit revelation on U.S. top executive turnover and compensation. It also examines potential explanatory variables affecting the executive turnover and compensation among U.S. fraud/lawsuit firms. Four important findings are documented. First, there was significantly higher executive turnover among U.S. firms with fraud/lawsuit revelation in the Wall Street Journal than matched firms without such revelation. Second, although on average, U.S. top executives received an increase in cash compensation after fraud/lawsuit revelation, this increase is smaller than that of matched non-fraud/lawsuit firms. Third, fraud/lawsuit firms were more likely to change top executive when chief executive officer (CEO) was not the board chairman and CEO had been on the board for a short time. Fourth, fraud/lawsuit firms were more likely to reduce their executive cash compensation when profitability was low, firms were involved in fraud, the compensation committee size was small, and the board met more often. These findings indicate that although, in general, U.S. fraud/lawsuits firms did not reduce their executive cash compensation, those involved in fraud were more likely to reduce their executive cash compensation than to change their top executives. The finding, that ethical standards is not a significant factor for U.S. executive turnover nor compensation reduction, suggests that ethics appears to play no part in the board’s decisions, and that U.S. firms may have ethical standards in writing but they do not implement nor enforce the standards.

Executive Compensation and Earnings Persistence

Governing boards utilize executive compensation contracts in an attempt to align executive actions with corporate goals. The objective is to ensure that executive performance provides value to the organization in terms of successful outcomes. A key performance criteria typically specified in CEO compensation contracts is earnings targets. However, using earnings as a performance evaluation may be problematic because some firms exhibit robust and sustained earnings over time (high earnings persistence), and other firms, such as high growth oriented firms, exhibit weak or sometimes negative earnings over time (low earnings persistence). Our study reveals that the effect of high earnings persistence results in firms that focus more heavily on cash compensation (salary and bonus) rather than on equity compensation (stock options, etc.) to compensate executive performance. Additionally, for firms characterized by low earnings persistence, our study indicates that cash flows from operations act as a supplementary performance measure to accounting earnings, and become increasingly important as a means to justify executive cash compensation.

The Managerial Labour Market and the Governance Role of Shareholder Control Structures in the UK

This paper simultaneously analyses two mechanisms of managerial labour market in the UK - CEO disciplinary turnover and executive compensation schemes. It relates them to the characteristics of corporate ownership structure. Executive cash compensation and turnover proves strongly performance-sensitive. However, the impact of the CEO replacement on subsequent firm performance appears to be weak. Both market - and accounting-based performance indicators play an important role in evaluating executive's productivity. The ownership concentration per se and substantial changes of block holdings do not prove a major determinant of the CEO turnover and compensation. Still, monitoring by some types of owners strengthens governance role of the managerial labour market, while large equity stakes controlled by CEOs result in entrenchment.

Managerial Remuneration: The Indirect Pay-For-Performance Relation

This article examines the relation between executive cash compensation and corporate performance for the market-oriented and control-oriented systems of corporate governance in Europe. Most research performed on the pay-for-performance relation has been conducted in the United States and the United Kingdom, because the widely held nature of shareholding makes the potential agency conflict between shareholders and management most prominent. Arguably, a stronger relation between pay and corporate performance might be expected in market-oriented than in control-oriented regimes. This is not, however, the case. Instead, there is recent evidence which shows that CEO cash-based compensation in the United Kingdom (a market-oriented system) hinges more on corporate sales growth. Conversely, executive compensation in some control-oriented systems appears not to depend solely on corporate sales growth, but relies, to a large extent, on share price and accounting performance. In particular, executive directors of Spanish firms controlled by strong investor groups receive increases in cash remuneration if their companies generate increases in shareholder value. In contrast, Spanish executives' cash compensation is linked to accounting performance if the company's equity concentration is diffuse.

Executive Cash Compensation and Corporate Performance During Different Economic Cycles*

AbstractCurrent practice of management cash compensation is based on financial targets. The financial targets for a year may be above, equal to, or below the previous year's publicly available performance measures based in part on the prevailing economic conditions. Accordingly, during economic downturn, a flat relation between changes in management cash compensation and simple changes in corporate performance, like annual profits or return on equity, is predicted, while during economic growth, a positive relation is predicted between changes of management cash compensation and corporate performance measures.The evidence in this study is based on the period 1987‐95. Pooled, cross‐sectional results are consistent with the propositions of no relation between changes in management cash compensation and changes in measures of corporate performance during periods of economic downturn and significant positive relation during economic growth. Further sensitivity analysis of these results with respect to market‐based performance measures, size, and industry classifications confirm the main results.

Executive Cash Compensation and Corporate Performance During Different Economic Cycles

Executive Cash Compensation and Corporate Performance During Different Economic Cycles

Executive Cash Compensation and Corporate Performance During Different Economic Cycles

Current practice of management cash compensation is based on budgeted, financial targets. These financial targets for a year may be above, equal to or below previous year?s publicly available performance measures based in part on the prevailing economic conditions. Accordingly, during economic growth a positive relation is predicted between changes of management cash compensation and corporate performance measures like changes in annual report or return on equity. On the other hand, during economic downturn, a flat relation between changes in management cash compensation and simple changes in corporate performance is predicted. The evidence of this study is based on the period of 1987 - 1995. Pooled, cross sectional results are consistent with the propositions of significant positive relation during economic growth, no relation between changes in management cash compensation and changes in measures of corporate performance during periods of economic downturn.

Market Comparison Earnings and the Bidding-up of Executive Cash Compensation: Evidence From The United Kingdom

We argue that compensation committees will pay executives at least at the going rate and that deviations from that rate will influence subsequent pay. In a sample of large U.K. companies, we estima...