Executive Compensation Packages Research Articles

Linking executive pay to ESG goals: the role of board gender diversity

PurposeIn recent years, US firms have increasingly integrated ESG performance goals into their executive remuneration packages. This study examines the relationship between board gender diversity and the tendency of firms to incorporate ESG metrics in performance-based compensation using data from US firms. The key questions this study addresses are: Are firms with more females on the board more likely to link executive compensation metrics? What components and types of ESG metrics are more likely to be adopted by firms with more females on the board?.Design/methodology/approachThis study employs OLS regression, logistic regression, as well as instrumental variable, propensity score matching, and entropy balance methods to establish causality.FindingsThis study finds that firms with gender-diverse boards are more likely to shape their executive remuneration plans to be more ESG-oriented. The most significant positive relationship is observed with environmental and social sub-categories. The results also demonstrate that female directors are more likely to encourage firms to evaluate managers based on absolute and short-term ESG goals.Originality/valueThis study is one of the early studies that examine the adoption of ESG performance goals into executive compensation plans. It contributes to the existing literature by exploring the relationship between board gender diversity and the probability of firms incorporating ESG performance goals into executive compensation packages using a sample of US firms.

Exploring the Nexus between Executive Compensation and Disclosure Transparency: Evidence from Taiwan

This study investigates the relationship between executive compensation and compensation disclosure transparency in Taiwanese firms, particularly in light of recent regulatory changes that mandate increased transparency. Employing a two-stage least squares (2SLS) regression model, the analysis focuses on the impact of executive salary and bonuses on various measures of compensation disclosure. The findings reveal a significant negative relationship between predicted executive bonuses and the Compensation Committee Quality Score (CCQ), indicating that higher bonus levels are associated with lower transparency in compensation committee disclosures. Conversely, executive salaries do not show a significant impact on compensation disclosure measures, suggesting that salary levels may not be a primary determinant of disclosure transparency in the Taiwanese context. The study contributes to the understanding of the dynamics between executive remuneration and transparency in financial reporting, highlighting the importance of executive bonuses in shaping compensation disclosure practices in Taiwan. The results have implications for policymakers, corporate executives, and shareholders, emphasizing the need to consider the structure of executive compensation packages in promoting transparency and enhancing corporate governance standards.

Incentive pay sensitivity to firm performance prior to anticipated CEO turnover

This study explores whether the sensitivity of CEO compensation to changes in firm performance depends on the CEO's likelihood of leaving the position. In a sample of 3180 US publicly-traded firms, we find that the sensitivity of bonus pay to firm performance is enhanced for a CEO who has reached retirement age. Further, we find that the sensitivity of bonus pay to firm performance is greater when there is evidence of a planned CEO turnover within a two-year window. We show that these findings are consistent with a principal-agent model in which firms who anticipate a greater likelihood of CEO departure find it advantageous to enhance the link between bonus pay and concurrent performance measures to compensate for the lowering of incentives that rely on the manager being employed long-term. The results provide a rationale for including bonus pay in the overall executive compensation package.

Compensation and carbon assurance: Evidence from the United Kingdom

This study investigates the influence of compensation on companies' decision to undertake carbon assurance. Using a sample of 1326 firm‐year observations from the United Kingdom between 2010 and 2018, this study finds that firms that include corporate sustainability incentive terms in executive compensation packages, firms that have higher director compensation and firms that have been involved in compensation controversies are more likely to undertake voluntary carbon assurance. Additional analyses show that the United Kingdom's mandatory greenhouse gas emissions reporting mandate, industry and gender diversity of the board of directors play significant moderating roles in the relationship between compensation and voluntary carbon assurance. The results of this study will help investors, managers and regulators better understand the factors that influence the growing carbon assurance market.

Factors Influencing CEO Compensation in Companies Listed on The LQ-45 Index of The Indonesia Stock Exchange 2016-2020

The purpose of this study is to find out the influence of tobin's-q, return on asset, women as CEO, board independence, institutional ownership, concentrated ownership, and firm size towards CEO compensation in companies listed on LQ-45 Index of the Indonesia Stock Exchange for the period of 2016-2020. This study uses a quantitative perspective with a linear regression model and data panel. The number of 205 data was observed continuously for five years according to the sample characteristics. Test model specifications with the Chow test and Hausman test shows that random effect models using white correction provide the most suitable results. The results showed that tobin's-q, women as CEO and firm sizes have a significant positive effect on CEO compensation. Meanwhile, institutional ownership has a significant negative effect on CEO compensation. The test results show return on assets and concentration ownership have no effect on CEO compensation. The contribution of this research can provide input for investors and management to understand the conditions of female executives' compensation and the factors that have fundamentally proven to affect the compensation of CEOs. Furthermore, these results have a strong reliability to be considered in designing executive compensation packages and good governance systems. Keywords: tobin's-q, women as ceo, institutional ownership, firm size, ceo compensation

Political Connections and Executive Remuneration in Indonesia: Does the Role of Institutional Ownership Matters?

Purpose : The study aims to examine the role of institutional ownership in moderating the effect of political connections on executive remuneration in Indonesia.
 Method : The study uses a quantitative method approach. The population of this study was all companies listed on the Indonesia Stock Exchange from 2015 to 2020. Research data sourced from www.idx.co.id, and OSIRIS. Using the purposive sampling method, 2,275 observations firms were determined. Hypothesis testing was carried out using multiple linear regression for panel data.
 Findings : The results revealed that only the main effects influenced executive remuneration. Institutional ownership, political connections positively affected executive remuneration. In addition, the interaction effect of institutional ownership was not shown to moderate the relationship between political connection and executive remuneration. These results suggest that political connection and institutional ownership are necessary to determine executive compensation. Therefore, stakeholders must be aware of the political connection misuse possibility in determining the executive compensation package. On the other hand, institutional ownership may be related to incentive-based pay, which needs to be explored further.
 Novelty : The novelty of this study is a new study that examines the phenomenon of political connections to executive remuneration in Indonesia and includes the role of governance-Institutional ownership as a moderating variable. In addition, this study uses the unbalance panel method, which examines all sectors of companies listed on the Indonesian stock exchange and observed for 6 periods or 2015 - 2020.
 
 Keywords: Corporate Governance; Institutional Ownership; Political Connection; Remuneration

RHETORIC ANALYSIS ON THE CONDITIONING FACTORS THAT WILL MAKE EXECUTIVE COMPENSATION PACKAGES RELATE TO PERFORMANCE OF PUBLIC ENTERPRISES IN NAMIBIA FROM 2017-2020

Salaries especially the packages of top executives has become a thorny discussion worldwide. In Namibia the executives are not only known for exorbitant packages but equally man the inefficient organisations. The purpose of this paper was conducted to achieve the following specific objective which is to determine the conditioning factors that will make compensation packages of executives relate to the performance of Commercial PEs in Namibia. It was all in the context of mixed research approach for data collection using a questionnaire as a tool. The paper found that 72% of participants indicated “Yes” to challenges with compensation packages of executives that hinder performances. It is recommended that the Government (shareholder) consider using an inclusive method to determine the compensation package for both internal and external arrangement, this relationship should be strengthened, by establishing an independent high-level committee on Commercila Public Enterprises (CPE) compensation. This would consequently reduce the 72% indication on Yes to challenges with compensation packages of executives that hinder performances. Government should invest in scrutinizing critical factors such as the age and academic levels of the CEOs, during appointments. It is further recommended that a study be conducted, to investigate the relationship between the roles of an independent high-level committee on executive compensation packages, aimed at enhancing performance in Commercial Public Enterprises in Namibia. KEYWORDS: Compensation Package; Performance; Commercial Public Enterprises; Executives

Principal–agent approach to energy executive compensation design

The principal–agent problem attracted attention from researchers 20 years ago in connection with Enron. The paper reports on the behavioral experiment of designing energy executive compensation contracts. An experimental approach based on principal–agent theory was applied (1) to design a fixed and variable component of the compensation contract, (2) to assess the impact of information disclosure on the terms of the contract, (3) and to estimate the response of the manager’s efforts to the terms of the contract. Hypotheses testing showed that (a) disclosure does not affect the decision-making of the owners (principals) regarding the size of the energy executive compensation package to the management (agents), (b) the nature of the disclosure has no significant impact on the manager’s acceptance (or rejection) of the compensation package, (c) an increase of the energy executive compensation package has an impact on the increase of the manager efforts, (d) disclosure does not significantly affect decision-making of managers regarding the level of their efforts.

Rhetoric Analysis on the Relationship between Executive Compensation and Performance of Commercial public enterprises in Namibia.

The purpose of this paper was to investigate the relationship between compensation packages and the performance of executive officers in Commercial Public Enterprises in Namibia. The paper was conducted to achieve the following specific objective: to determine the relationship between compensation packages of executives and the performance of Commercial PEs in Namibia. It was all in the context of mixed research approach for data collection using a questionnaire as a tool. The study found that there is a partial relationship between executive compensation and the performance of some commercial public enterprises, in accordance with their Tier Levels. It is recommended that the Government (shareholder) finds the best fit model of executive compensation packages in order to induce a positive level of performance. It is further recommended that a study be conducted, to investigate the relationship between the role of an independent high-level committee on executive compensation packages, aimed at enhancing performance in Commercial Public Enterprises in Namibia
 
 Keywords: Compensation Package; Performance; Commercial Public Enterprises; Executives

Corporate Social Irresponsibility (CSiR): Does CEO Compensation Matter?

This paper examines the relationship between CEO compensation and corporate social irresponsibility (CSiR) by examining the perceptions of fairness or unfairness of CEO compensation structure. Infusing the integrative model of organizational trust with the bounded self-interest agency theory and the stakeholder-agency theory, we progress the distributive unfairness hypothesis and the procedural unfairness hypothesis to suggest that perceptions of distributive and procedural unfairness in compensation structure influence the severity with which CEOs view firms as opportunistic towards them. Using a sample of 8,873 observations across 849 U.S. firms between 2001-2018 and sophisticated empirics, we theorize and empirically demonstrate how CEO perceptions of firm opportunism trigger negative reciprocity behaviours, manifesting in increased firm-level CSiR. Furthermore, we find the prevalence of reinforcing and counter-balancing effects through which the interactions between distributive and procedural unfairness impact the CEO compensation-CSiR relationship. Our paper contributes to the literatures on CEO compensation and corporate misconduct and has important implications for the design of executive compensation packages.

EFFECT OF SHORT-TERM INCENTIVES ON MANAGERS’ MOTIVATION: A CASE STUDY OF SERBIAN BANKING SECTOR

The aim of this paper is to investigate the differences in managers’ motivation with short-term incentives in the banking sector of the Republic of Serbia. The research study examined whether short-term incentives differently affect managers’ motivation, depending on hierarchy and age. For this purpose the survey was conducted, using a questionnaire method. The analysis of various literature sources was performed, emphasizing the importance of short-term incentives, as compensation component, for managers’ motivation. Based on insights into existing studies, research hypotheses were established. The empirical results were analyzed quantitatively, using standard statistical methods. The results indicated that there are no significant differences in managers’ motivation with short-term incentives, in relation to their current hierarchical position. Further, the survey results revealed significant relationship between motivation with short-term incentives and managers’ age, that is, the findings show that short-term incentives are more effective in motivating older managers. Therefore, the results are important for compensation strategies in contemporary business organizations. From the aspect of designing executive compensation packages, organizations need to adapt them to different subgroups of managers, considering their motivational preferences.

Executive compensation and corporate social responsibility: does a golden parachute matter?

PurposeThis study examines the efficacy of compensation in encouraging corporate executives to promote corporate social responsibility (CSR). In particular, it closely examines the effect of a golden parachute (GP) on an executive's behavior toward CSR.Design/methodology/approachThis study uses longitudinal data on 1,301 US firms for the period from 1993 to 2013. The data comes from Compustat, MSCI ESG STATS, RiskMetrics and ExecuComp.FindingsWe find an inverse association between current and long-term compensations and GP on firms' CSR. However, a test on the moderating effect discloses that a GP and long-term compensation jointly and positively increase the firms' CSR performance. This increase supports the idea that executives with a GP seek to maximize their long-term wealth by approving CSR projects that add value. The results also show that female executives are more likely to promote CSR than their male counterparts, and older executives are less willing to engage in CSR projects.Practical implicationsAdding a GP contractual clause to the executive compensation package could encourage greater engagement in CSR projects. The CEO with a GP will ensure that the firm engages in only value-enhancing CSR projects; this should align the interest of the society (greater firm engagement in CSR) with the interest of the firm (value maximization).Originality/valueThis study contributes to the literature by examining the moderating effect of a GP on the association between CSR and executive compensation.

Executive Compensation Packages and Customer Acquisition of Selected Deposit Money Banks in Lagos State Nigeria

Executive compensation is a major strategy being employed by deposit money banks to achieve steady growth in their customer acquisition efforts. The banks face series of challenges including inability to achieve consistent service excellence which had negatively impacted on new customer acquisition. The study examined the effect of executive compensation package on customer acquisition of selected deposit money banks in Lagos State, Nigeria. The study employed cross sectional survey research design where four hundred and twenty-nine copies of the research instruments were administered to purposively selected respondents who were senior and executive staff of the selected banks. The result of multiple regression analysis revealed that base salary (B = 0.217, p = 0.000) and recognition (B = 0.123, p = 0.012) have positive and significant effect on customer acquisition while supplementary benefits (B = 0.017, p = 0.568) and executive bonus (B = 0.044, p = 0.175) have positive, but insignificant effect on customer acquisition. The study concluded that executive compensation has positive effect on customer of selected deposit money banks in Lagos State, Nigeria. It was recommended that attractive compensation management should be instituted to ensure that executive staff are adequately remunerated to facilitate their performance with less distractions.

Unionized employees’ influence on executive compensation: Evidence from Korea

AbstractThis article explores the relationship between executive compensation and employee voice using a panel dataset from Korean firms. It was found that the existence and rate of labour unionization are both negatively associated with executive compensation payment, and that the negative association is progressively stronger for upper percentile executive pay. Labour union existence also has a strong negative correlation with stock option use in executive compensation packages, but unionization rate does not, implying that union existence is more critical in shaping executive compensation structures than the strength of the union. Membership of large family‐owned business conglomerates (chaebol), high financial risk and high employee wages are identified as channels that reinforce the negative influence of labour unions on executive compensation.

Financial reporting quality and peer group selection

Similarity between a firm and a potential peer firm with respect to important economic characteristics is a first-order criterion to select peer firms. As economic characteristics are often captured through information disclosed in publicly available financial reports, financial reporting quality (FRQ) of a potential peer firm could influence peer group selection. We hypothesize that potential peer firms with higher FRQ are more likely to be included in the peer group of another firm because the reduced information asymmetry and lower reputation costs connected to higher FRQ of potential peer firms can influence the board of directors’ evaluation of similarity between the firm and a potential peer firm. Analyzing the peer groups used by S&P 900 firms for benchmarking executive compensation packages, we find support for our hypothesis and the channels we specify in our theory. Our results are robust across several measures for FRQ, albeit they are somewhat weaker when FRQ is measured by means of internal control deficiencies, fraud, and AAERs. Using alternative specifications to define the potential peer group and controlling for corporate governance strength does not change our inferences and our results also hold when we control for the presence of the potential peer firm in the peer group of the previous year. This study contributes to previous research on peer groups by examining the accounting information environment around peer group composition.

Much sweat, much pay - less sweat, less pay? Evidências de “coleguismo” na determinação da remuneração dos executivos brasileiros

Objective: This study verifies the relationship between the remuneration of the board of directors and the remuneration of executives, as well as the relationship between these remunerations, and the economic and financial performance of Brazilian publicly-held companies. Method: The work promotes the analysis by estimating two regression models with panel data, pooled independent cross-sections and fixed effects. Originality/Relevance: Scientific studies on remuneration in Brazil have focused on the relationship of remuneration with the economic-financial performance of companies and/or with the characteristics of corporate governance. However, there is still room to investigate possible mechanisms of reciprocity between salary increase of statutory directors and the remuneration increase among members of the boards of directors. Results: The results indicate that the remuneration of the board of directors is positively related to the remuneration of executives; that these remunerations do not present a significant relation with the economic-financial performance of the companies; and that cash flow risk is negatively related to executive compensation. Theoretical/Methodological Contributions : The study provides evidence of a synchronism between remuneration of executives and directors, a fact that may explain why the remuneration of these agents is not related to the economic-financial performance of the companies. Also, it shows that executive compensation packages contribute to reducing the risk of the cash flows to which companies are exposed.

The Determinants of Executive Compensation in US REITs: Performance vs. Corporate Governance Factors

ABSTRACTThe paper examines whether executive compensation packages within the US REIT industry are determined merely by performance or also by CEO power mechanisms that have an essential influence on board-level negotiations. We offer original insights into management compensation arrangements during and after the financial crisis. The relative importance of cash bonuses in CEO compensation contracts has more than halved after the crisis. Simultaneously, after the financial crisis, equity-based compensation became increasingly important. Concerning the pay-for-performance link, our results show no relationship during the financial crisis. However, after the crisis, we find a strong significant link between remuneration packages and corporate success.

Does Say on Pay Matter? Evidence from Germany

We analyze a hand-collected dataset of 1682 executive compensation packages at 34 firms included in the main German stock market index (DAX) for the years 2009-2017 in order to investigate the impact of the 2009 say on pay-legislation. The findings provide important insights beyond the German case, not only for the impending implementation of the revised European Shareholder Rights Directive. First, we observe that the compensation packages of management board members of Germany’s DAX30-firms are closely linked to key performance measures such as return-on-assets and size. Second, and most important for our topic, our findings suggest that it is essential to take a closer look at the contractual set-up for the compensation schemes and their structure. When we only consider the compensation packages of all board members, the hypothesis that remuneration is decreased if shareholder support for compensation schemes is low in say on pay-votes finds only weak support, if any at all. However, we find that the supervisory board is responsive to say on pay-votes when it comes to the design of compensation packages for newly entering candidates, i.e. within the binding restrictions of contract law, it reacts as envisioned by policy makers. It is a consequence of the way say on pay is supposed to work that our results are driven by the rather few pronouncedly discontent say on pay-votes in corporate Germany – only where disapproval is voiced supervisory boards have reason to change compensation packages. They leave matters unaffected where shareholders show rather strong support for the proposed schemes as is the case in most of the observations in our dataset. Yet, it is important because it informs our understanding of the channels through which say on pay works. Our observations carry over to the general analytical approach for say on pay-regimes. Any evaluation of a shareholder voice-strategy in regulating executive remuneration has to pay close attention to the limits contract law stipulates for the adaptation of existing remuneration agreements and thus has to take a medium to long-term view that ideally extends to a full turnover-period for board-members.

Say‐On‐Pay Voting: A Five‐Year Retrospective

AbstractThe Dodd‐Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama in July 2010, included two significant corporate governance mandates: “say‐on‐pay” shareholder voting and the frequency of such votes among all publicly traded companies. The say‐on‐pay rule requires publicly traded companies subject to proxy rules to offer their shareholders an advisory, or nonbinding, vote at least once every three years on the compensation packages of the most highly compensated executives. The actual data for the first five years of say‐on‐pay voting indicates one intractable conclusion: that shareholder say‐on‐pay voting has not verified what many shareholder activists originally believed, i.e., that the majority of shareholders held similar opinions about business executives being significantly overpaid for their managerial performances. During its first five years in effect, the results of say‐on‐pay voting indicate that shareholders are overwhelmingly satisfied with executive compensation packages, as a 92 percent average shareholder say‐on‐pay approval result (i.e., exceeding 70 percent) among companies listed in the Russell 3000 Index attests.

Do Compensation Committees Do What They Say They Do? Evidence from Compensation Philosophy Disclosed in Proxy Statements

Based on textual analysis of hand-collected Compensation Philosophy data disclosed in the Compensation Discussion and Analysis (CD&A) section of the proxy statement of S&P500 firms from 2006 to 2015, we investigate whether the Compensation Committee sets executive compensation according to the Compensation Philosophy. We identify agency theory and resource dependence theory as the main themes of the Compensation Philosophy and analyze how emphasis on these theoretical perspectives translates into the executive compensation package. We find that emphasis on resource dependence theory themes does lead to corresponding executive compensation, but we do not find any significant association between agency theory themes and executive compensation. We interpret this insignificant relationship as an act of symbolism by the Compensation Committee in order to establish its legitimacy in the eyes of stakeholders. We draw on institutional theory to explain the decoupling of substance and symbolism in the implementation of the Compensation Philosophy.