Executive Incentive Compensation Research Articles

How Large Is the Pay Premium from Executive Incentive Compensation?

ABSTRACT We estimate the pay premium associated with CEO incentive compensation. Using explicit detailed U.S. CEO compensation contract data and simulation analysis, we find that CEOs with riskier pay packages receive a premium for pay at risk that represents 13.5 percent of total pay. The premium is positively correlated with proxies for CEO risk aversion, but implied risk aversion values suggest that the premium is economically smaller than suggested by prior studies. We perform our tests using a variety of proxies to measure the variance of pay and find consistent evidence of economically small pay risk premiums. These results are consistent with recent findings suggesting that risk may have a more limited influence over the level of pay than previously thought. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: D81; G30; J33.

CEO inside debt and industry specialist auditor

PurposeThis paper aims to examine the effect of executive compensation incentives, specifically CEO inside debt holdings, on the choice of industry specialist auditor.Design/methodology/approachHigh inside debt holdings are expected to constrain excessive managerial risk-taking and align the interests of managers and outside debtholders. The authors hypothesize that reduced debtholders’ expropriation concerns will decrease the demand for high audit quality, measured by industry specialization. The authors investigate a sample of US firms from 2006 to 2018 using OLS regression and use CEO relative leverage to proxy for CEO inside debt holdings. The authors conduct an additional two-stage least squares regression analysis to address potential endogeneity issues.FindingsThe paper finds that firms with higher levels of CEO inside debt tend not to appoint an auditor with industry specialization. This result is consistent with the notion that inside debt mitigates agency conflicts between managers and debtholders, reducing the demand for high-quality audits as a monitoring mechanism. The paper also finds that among firms which are excessively leveraged, those with higher levels of CEO inside debt tend to appoint an industry specialist auditor.Originality/valueThe findings contribute to the literature on agency cost and auditor choice by demonstrating that CEO inside debt has both substitutive and complementary effects on demand for industry specialist auditors.

Mixed ownership reform of state-owned enterprises and executive compensation stickiness: Evidence from China

Optimization of executive compensation incentives is an important part of the reform of state-owned enterprises, but the existence of executive compensation stickiness weakens the effect of compensation incentives. Based on data of state-owned enterprises listed on the Chinese A-shares market over the 2013–2019 period, this paper evaluates the ownership reform, or mixed ownership, of state-owned enterprises by the shareholder ratio of non-state shareholders and the appointed directors, and examines the relationship between the mixed ownership reform of state-owned enterprises and the executive compensation stickiness. The study concludes with the following findings. The shareholder ratio of non-state shareholders has no significant impact on the executive compensation stickiness, whereas directors appointed by non-state shareholders significantly reduce the executive compensation stickiness. Compared to pure central enterprises, the inhibiting effect of the mixed ownership reform on the executive compensation stickiness is more significant in local state-owned enterprises. The inhibiting effect of the mixed ownership reform on the executive compensation stickiness is more significant when managerial power is restricted or regional marketization degree is low. This paper enriches and extends extant studies on the impact of ownership reform on executive compensation incentives from the perspective of executive compensation stickiness, and provides important empirical evidence for the enhanced relationship between reforms of state-owned enterprises and executive compensation.

Effect of Appointed Directors on Corporate Carbon Emission Intensity: Evidence from Mixed-Ownership Reform in Chinese Private Industrial Enterprises

The growing prominence of global warming has led to a worldwide consensus on the need to reduce carbon emissions. Employing a sample of private industrial enterprises listed on the Chinese stock market from 2008 to 2021, this study explores the effect of directors appointed by non-controlling state shareholders (appointed directors), which is a growing type of mixed-ownership reform, on corporate carbon emission intensity. The results show that appointed directors significantly reduce corporate carbon emission intensity. Mechanism tests suggest that this reduction is achieved through developing environmental strategies and increasing executive compensation incentives. Heterogeneity analyses reveal that the effect of appointed directors is more pronounced for firms with lax regional environmental regulation, in non-heavily polluting industries, with low analyst coverage, and with poor green innovation abilities. Our findings shed light on the effectiveness of mixed-ownership reform from the perspective of appointed directors and offer new implications and evidence for environmental protection and the sustainable development of enterprises in emerging markets.

Executive compensation and corporate sustainability: Evidence from ESG ratings

Selecting A-share listed companies in Shanghai and Shenzhen, China, during the period of 2012–2021 as research subjects, this study examines the relationship and operational mechanisms between executive compensation and corporate ESG Ratings. It is found that executive compensation incentives can significantly enhance corporate ESG Ratings. This effect is achieved through promoting green innovation efficiency, enhancing environmental information disclosure, and improving financial performance. However, this positive impact weakens with an increase in management shareholding, but strengthens with a higher proportion of independent directors. When compensation exceeds appropriate levels, overcompensation leads to a decline in ESG Ratings. The significance of this study lies in revealing potential pathways for enhancing corporate sustainability through executive compensation incentives, while also emphasizing the importance of formulating appropriate compensation strategies.

Non‐state shareholder governance and technological innovations of state‐owned enterprises: The moderating effect of executive compensation incentives

AbstractThis study focuses on the impact mechanism of non‐state shareholder governance on technological innovation in state‐owned enterprises (SOEs) from the perspective of executive compensation incentives, using listed manufacturing companies of SOEs from 2014 to 2020 as research samples. The research findings indicate that the mere ownership of shares by non‐state shareholders has no significant impact on technological innovation. However, the delegation of executives by non‐state shareholders contributes to enhancing technological innovation in SOEs. So Improving technological innovation in SOEs is a crucial objective in the ongoing deepening and enhancing actions of the new round of state‐owned enterprise reforms.

Capital market liberalization and accounting quality: Evidence from China

Introducing the Shanghai-Shenzhen-Hong Kong Stock Connects (the Connects) as an exogenous shock, we find that capital market liberalization significantly reduces real earnings management, accrual earnings management, earnings smoothing, and promotes information disclosure evaluation grades for A-share companies. Heterogeneity analysis indicates that this favorable impact is more significant for companies with poorer information environments, higher auditor reputation risks, higher corporate governance quality, and stronger executive compensation incentives. This study further contributes to the literature on the impacts of capital market liberalization on accounting quality by providing new empirical evidence from China.

Internationalization of family business and innovation investment: An executive incentive-based perspective

We selected a sample of listed family business in China from 2017 to 2022 to explore the relationship between the internationalized operations of family businesses and corporate innovation investment. It is found that the internationalized operation of family businesses has a positive impact on innovation investment; executive compensation incentives and executive equity incentives positively regulate the impact of the internationalized operation on innovation investment of family businesses.

A Study of Executive Compensation Incentives and Firm Performance

Proper executive incentives alleviate agency conflict and improve firm performance. This study examined the pertinent literature on the recent study of executive compensation incentives and company performance. Through the literature analysis method, the last five years of relevant literatures were classified according to monetary pay incentives, equity pay incentives and pay gap incentives. This paper summarized the common conclusions that were obtained from the current researches and discussed some deficiencies of current researches. At the same time, this paper also put forward suggestions on sample selection, research methodology and other shortcomings in the current researches. By analyzing and integrating the literature from 2018 to 2023, it helps company owners to improve company performance starting from executive compensation incentives in the corporate governance process. At the same time, this paper will provide an outlook on the possible directions of future related research and provide new ideas for future research.

The Association Between Governance Mechanisms and Sustainability Assurance Levels: The Case of CAC 40 Firms

Purpose: Recently, there has been an increasing interest in corporate governance as well as in sustainability. However, the link between corporate governance and sustainability is still under debate. The current study provides evidence on whether sustainability assurance levels are linked to corporate governance mechanisms. Specifically, we examine the association between corporate governance mechanisms (ownership structure, governance characteristics), characteristics of the company, the type of assurance provider, and sustainability assurance levels in the French context. Methodology: We collected the necessary data about the CAC 40 firms from 2008 to 2018 and opted for an ordinal regression model with panel data. Findings: Results indicate that corporate governance mechanisms play a vital role in providing sustainability assurance levels. Most corporate governance mechanisms, especially the board size, the executive incentive compensation, the sensitivity of sectors, and the type of assurance provider have a significant impact on sustainability assurance levels. The findings of this study show that the board size has a positive association with the level of sustainability assurance, hence favoring the choice of a reasonable assurance level. On the other hand, the executive incentive compensation, the sensitivity of sectors and the type of assurance provider are negatively associated with the assurance level, hence implying the choice of a moderate level.Implications: The paper offers useful insights for firms, stakeholders, and other users of the reports, as they will have a deeper understanding of sustainability assurance practices. The size of the sample might be a limitation of this study.Contribution: This is the first study that empirically tests the association between governance mechanisms and sustainability assurance levels. Furthermore, this study contributes to the existing literature and highlights the impact of governance mechanisms on sustainability assurance levels.

ESG Performance, Executive Compensation Incentives and Corporate Financial Performance

ESG Performance, Executive Compensation Incentives and Corporate Financial Performance

Analysis of Executive Compensation Management Strategies of Multinational Enterprises in the Context of RMB Internationalization

Abstract This paper applies the EVA-based bonus incentive model and the EVA-based stock option incentive model to the executive compensation incentive system of multinational enterprise D and calculates the EVA amount by combining the profitability of multinational enterprise D and compares it with the net profit amount of the enterprise to obtain the difference between the two. In order to further investigate the relationship between the EVA amount and the net profit of multinational enterprises, the correlation hypothesis between executive compensation and the management of accrued surplus and the management of actual surplus is carried out, respectively. The countermeasures for the management of executive compensation in multinational enterprises under the background of the internationalization of the RMB are proposed according to the establishment of the research hypothesis. Executive compensation and accrued surplus management are negatively correlated, as shown by regression analysis, and an increase in the former will have a significant inhibitory impact on accrued surplus management behavior. There is a positive correlation between executive compensation and natural surplus management, and the significance level is 5%. This means that the increase in executive compensation has a promotion effect on natural surplus management.

The Impact of Executive Compensation Incentive and Internal Control on ESG Performance of Listed Companies

The Impact of Executive Compensation Incentive and Internal Control on ESG Performance of Listed Companies

A good name is rather to be chosen: The impact of CEO reputation incentives on corporate green innovation

AbstractIn contrast to studies examining the effects of government incentives such as environmental regulation on corporate green innovation, this paper investigates the influence of CEO reputation, a market‐based incentive mechanism, on companies' green innovation behavior. Utilizing green patent data from Chinese A‐share listed companies from 2007 to 2020, we construct a CEO reputation index through principal component analysis and examine its impact on corporate green innovation behavior and underlying mechanisms. Our findings indicate that CEO reputation positively affects companies' green innovation behavior. This effect is primarily driven by reducing financing constraints, CEOs' risk perception, and rising environmental awareness. Further heterogeneity analysis reveals the positive relationship between CEO reputation and green innovation behavior is more pronounced in companies with strong executive compensation incentives, political connections, and effective internal control.

The Impact of Research and Development Investment on Total Factor Productivity of Animal Husbandry Enterprises: Evidence from Listed Companies in China

Improving the total factor productivity (TFP) of animal husbandry enterprises is the key to promoting the sustainable development of animal husbandry. Technological progress is an important driving force for improving the TFP of animal husbandry enterprises, and research and development (R&D) investment determines the speed of technological progress. Based on the data of Chinese animal husbandry enterprises listed on Shanghai and Shenzhen A-shares in China between 2009 and 2022, this article empirically analyzes the impact of R&D investment on the TFP of animal husbandry enterprises and the moderating role of executive incentives in it and discusses the heterogeneity of this impact, using the fixed-effects model. It is found that R&D investment has a significant positive impact on the TFP of animal husbandry enterprises, and the TFP of animal husbandry enterprises increased by 0.00105 for every 1% increase in R&D investment. Equity incentives for executives positively moderated the relationship between R&D investment and the TFP of animal husbandry enterprises, while executive compensation incentives negatively moderated the relationship. Heterogeneity analysis shows that R&D investment has a significant effect on the TFP of non-state-owned animal husbandry enterprises, but has no significant impact on the TFP of state-owned animal husbandry enterprises. The impact of R&D investment on TFP showed a significant promotion in the livestock and poultry breeding and meat product processing industries, but not in the feed production, dairy product processing and animal health industries. R&D investment has a significant effect on the TFP of animal husbandry enterprises in Eastern China and Central China, but has no significant impact on the TFP of animal husbandry enterprises in Western China.

Mediating effect of ESG performance on executive incentive compensation-financial performance relationship: evidence from MENA banking sector

PurposeThis study aims to investigate whether integrating environmental, social and governance (ESG) practices mediates the relationship between executive incentive compensation and the financial performance of Islamic and conventional banks in the Middle East and North Africa (MENA) region.Design/methodology/approachThis study used multiple regression models to analyze the effectiveness of ESG practices as a mediating variable in explaining the relationship between executive incentive compensation and banks’ financial performance between 2015 and 2021. The sample consisted of 57 Islamic and conventional banks operating in the MENA region, and the data were collected from the Thomson Reuters database (Data Stream).FindingsThis research paper showed the positive and significant mediating effect of the ESG practice on Banks’ financial performance. Thus, banks’ financial and stock market profitability is influenced by ESG information disclosure. This finding shows that taking ESG into account improves the relationship between executive incentive compensation and banks’ financial performance.Practical implicationsThe results may interest academic researchers, regulators and policymakers and would support stakeholders and decision-makers who wish to discover how executive incentive compensation affects financial performance in banks.Originality/valueThis study contributes to previous literature by studying the mediating effect of ESG practices on the relationship between executive incentive compensation and banks’ financial performance. Indeed, the originality of this research paper is justified by the scarcity of studies and, to the best of the authors’ knowledge, constitutes one of the first attempts to examine this relationship via a mediating variable, i.e. ESG.

The impact of executive compensation incentive on corporate innovation capability: Evidence from agro-based companies in China.

This paper aims to examine the impact of executive compensation incentive on corporate innovation capability by dividing executive compensation incentive into short-term monetary incentive and long-term equity incentive. We also investigate the interaction between the two types of executive compensation incentive. Data are collected from China's agro-based companies during 2012-2019, and multiple regression analysis is utilized. The empirical results show that short-term monetary incentive has no impact on innovation capability, while long-term equity incentive stimulates innovation capability. Regarding company ownership, the impact of long-term equity incentive in state-owned enterprises is greater than that in private-owned enterprises. In addition, the complementary effect between short-term and long-term compensation incentive has a positive impact on innovation capability regardless of company ownership. The findings of this paper could help agribusiness managers to design the reasonable incentive system to incentivize corporate executives and enhance the capability of independent innovation.

The Impact of General Manager’s Responsible Leadership and Executive Compensation Incentive on Enterprise ESG Performance

This paper takes 101 enterprises in high-tech industries as research samples to investigate the impact of a general manager’s responsible leadership on enterprise ESG performance. The results showed that (1) a general manager’s responsible leadership can promote enterprise ESG performance, and (2) organizational resilience has a mediating effect between general manager responsible leadership and enterprise ESG performance. These conclusions were still robust after a series of validity tests. Further analysis showed that a monetary compensation incentive for senior executives positively regulates the indirect effect of a general manager’s responsible leadership on enterprise ESG performance through organizational resilience; that is, when monetary incentive for senior executives is high, the positive impact of a general manager’s responsible leadership on enterprise ESG performance through organizational resilience is strong. However, the influence of executive equity-based compensation incentive on their relationship is not obvious. The conclusions of this study provide theoretical and practical enlightenment for improving enterprise ESG performance, enrich the research on the intermediary mechanism of organizational resilience on responsible leadership and enterprise ESG performance, and provide intervention and decision-making basis for enterprises, regulators, and other relevant departments. The limitations of this study pave the way for further research directions, incorporating equity-based compensation incentive on promoting responsible leadership to achieve high ESG performance, and allowing for a better evaluation assessment.

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.

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.