Executive Perks Research Articles

Perks and labor investment efficiency: Evidence from China

This study investigates the effect of perks on future labor investment efficiency. Agency theory suggests that perks motivate managers to distort investments for personal gain. By contrast, incentive contract theory suggests that perks can be a component of incentive contracts, encouraging managers to make investments in the best interest of shareholders. Based on a sample of 12,818 firm–year observations from 2009 to 2017, we find that perks are positively related to future labor investment inefficiencies, consistent with agency theory. An exogenous reduction in executive perks caused by the 2012 anti-corruption campaign decreases labor investment inefficiencies. Further analyses show that the positive effect of perks on overinvestment predominantly occurs when firms have excessive free cash flow, low political visibility, and a less-educated workforce, whereas the positive relationship between perks and underinvestment is more prevalent. Finally, we find that perks and labor investment inefficiencies are detrimental to firm value.

The effect of internal control quality and internal control disclosure regulation on executive perks: A quasi natural experiment from China

This paper investigates the effect of internal control quality and mandatory internal control disclosure regulation on executive perks in China. Based on a sample of Chinese firms between 2008 and 2019, this study finds that internal control quality and the mandatory disclosure regulation limit both under‐consumption and over‐consumption of executive perks. Furthermore, the mandatory regulation strengthens the relationship between internal control quality and the levels of executive perks. The results are consistent across alternative measures of key variables and are robust to endogeneity analyses. The findings of this study have important implications for policymakers, managers, and investors seeking to understand the determinants of the abnormal consumption of executive perks and the associated economic consequences of the internal control system.

Blockholder exit threats and excess executive perks

There is a growing interest in the influence of blockholder exit threats on corporate governance. When perceive managerial underperformance, blockholders have strong incentives to reduce their shareholding, which in turn requires managers to align their actions with the interests of shareholders. In this paper, we further develop the theory of blockholder exit threats by scrutinizing the influence of blockholder exit threats on excess executive perks. Empirical results suggest that blockholder exit threats have a significant reducing effect on excess executive perks, which is further confirmed via robustness checks. It is also found that the reducing effect is enhanced when managers’ wealth is closely related to stock prices, blockholders are long-term strategic blockholders, or short selling is allowed, under the condition of a deteriorating information environment or corporate governance, or before the Blockholders Reduction Restrictions.

Public attention and executive perks: Evidence from China

This paper investigates the impact of public attention on executive perks. To establish causality, we exploit an exogenous shock in public attention measured by whether the actual controller of the firm appeared on the Rich List in China. Using a difference-in-difference approach, we find that firms with their actual controller on the Rich List generate fewer executive perks than those that are not influenced by the event. Our findings also demonstrate that external information environments and corporate governance can serve as the economic mechanisms. With the increase of public attention, the information asymmetry is reduced and the corporate governance is improved, thus discouraging the executive perks.

Public governance and executive perks under a weak corporate governance environment

AbstractWe reveal state‐led anti‐corruption campaigns in China can mitigate excess executive perk consumption facilitated by firms' weak internal control environment. Our findings suggest that public governance can substitute for firm‐level governance mechanisms. Since these campaigns enhance the central government's disciplinary power over local state‐owned enterprises (SOEs), the above effects are heightened among SOEs controlled by provincial/municipal governments rather than the central government. Irrespective of political connections, non‐SOEs are also affected, indicating policy effect spillover to China's private sectors. We explore several underlining mechanisms for these effects, including Communist Party Committee governance, chief executive officer/chairperson dismissal, industry competition, and firm productivity.

Getting implicit incentives right in SOEs: research on executive perks in China’s anticorruption movement

ABSTRACT The anticorruption movement since 2012 has a deep impact on Chinese social governance and economic development. This paper examines the effect of anticorruption rules on the performance of state-owned enterprises (SOEs) and suggests that perquisite consumption of SOEs has an implicit incentive for the executives. Although anticorruption rules restrict the excess perks of SOEs and reduce financial performance, it unexpectedly boosts SOEs’ capital market value. A few mechanisms may be at work: (i) the diminishing marginal utility of executive perquisite consumption of SOEs; (ii) a refined macroeconomic environment leads to better performance in company value; and (iii) the decreased financing costs has a positive effect on the company value of SOEs.

Blockholder Exit Threats and Excess Executive Perks

Blockholder Exit Threats and Excess Executive Perks

Changing Attitudes toward Executive Perquisites: Indications from TARP

This paper examines what happened to Chief Executive Officer (CEO) monetary and nonmonetary compensation at Standard & Poors (S&P) 500 firms in the years surrounding the 2008 financial crisis and in the context of the Troubled Asset Relief Program (TARP) legislation. We use novel data on executive perks at S&P 500 firms from 2006 to 2012. Overall, the results are consistent with lasting impact on nonmonetary compensation and temporary impact on monetary compensation.

Changing Attitudes toward Executive Perquisites: Indications From TARP

This paper examines what happened to Chief Executive Officer (CEO) monetary and nonmonetary compensation at Standard & Poors (S&P) 500 firms in the years surrounding the 2008 financial crisis and in the context of the Troubled Asset Relief Program (TARP) legislation. We use novel data on executive perks at S&P 500 firms from 2006 to 2012. Overall, the results are consistent with lasting impact on nonmonetary compensation and temporary impact on monetary compensation.

A New Market-Based Approach to Securities Law

Modern securities regulation has three main areas, each of which is plagued by a core problem. Mandatory disclosure law leaves society with suboptimal disclosure, as the government calls for too little of some information (for example, management analysis of company prospects) and too much of other information (for example, data about trivial executive perks). Securities fraud law (specifically, its central fraud-on-the-market theory of reliance) yields damages at odds with any reasonable theory of compensation and deterrence. And insider trading law fails to achieve its ends because incentives to police illegal trading and tipping by executives are currently weak. In this Article, we propose fixing these fundamental flaws of securities law by shifting much of the regulatory focus from firms to information. In particular, we introduce the idea of building the law around a well-regulated market for the public company information that sits at the center of each of the three main areas of securities law. Deploying this market, we argue, would trigger incentives for firms to disclose more information of value while also motivating them to more rigorously police illegal trading and tipping by their agents. Additionally, it would help regulators identify when the law requires disclosure that is not socially valuable and assist in the identification of a class of securities fraud plaintiffs that is more in line with the goals of the anti-fraud regime.

The Impact of Public Scrutiny on Executive Compensation

This paper examines the impact of public scrutiny on CEO compensation using the unique opportunity provided by the 2008 financial crisis, government support, and legislated compensation restrictions. I introduce novel data on executive perks at S&P 500 firms from 2006 to 2012. Overall, my results are consistent with increased public scrutiny having lasting impact on perks and temporary impact on wage, and with legislated compensation restrictions having temporary impact on wage. Changes in specific perks items provide evidence on which perks firms perceive as excessive and which provide common value.

An Empirical Evaluation of the Determinants of Executive Perks at S&P 500 Firms

This paper provides a comprehensive analysis of the determinants of executive perks at S&P 500 firms using manually collected panel data. CEOs receive perks more frequently and at higher levels than other named executive officers (NEOs). In general, S&P 500 firms with larger growth opportunities, realized growth, stock returns, and return on assets are less likely to provide perks and provide lower levels of perks when they do. Firms with powerful CEOs are more likely to provide perks. Firm size and executive monetary compensation are the most influential determinants of the value of perks. Overall, tenure and gender do not impact the likelihood or value of perk compensation at S&P 500 companies.

Bench Mark for Total Quality Customer Service

Singapore International Airlines benchmarks other service industries such as hotels and restaurants to make its service more comfortable, convenient, and creative the bottom line is delivering exceptional service and personifying that service. Indiscriminate class wise Customer service pays rich dividends and branded as the best Airlines operator in the International sector. Equality in providing hospitality directs and guides SIA towards success. Priorities and decisions are based on the needs of the customer, not executive perks. By placing the needs of passengers first, the whole atmosphere and the flight experience changes. SIA’s heavy investment in staff development and training conducted enables staff members to stay focused and continuously upgrade their performance.

Government intervention and executive compensation contracts of state-owned enterprises: empirical evidence from China

This paper attempts to examine the impact of government intervention on executive compensation contracts by employing the data of listed companies in the Chinese equity market. The results show that redundancy burden caused by government intervention significantly reduces the compensation-performance sensitivity of executives in state-owned enterprises (SOEs), increases the level of compensation stickiness and leads to more executive perks. However, there is no evidence to support this conclusion in non-SOEs. Our results indicate that government has great responsibility for redundancy in SOEs and has a significant impact on the design of executive compensation contracts, but has limited impact on that of non-SOEs. Therefore, the impact of redundancy burden on executive compensation contracts is different between SOEs and non-SOEs. Our findings have important implications for the relationship between property rights and corporate performance, the formation mechanism of redundancy, and the impact of redundancy burden on executive compensation contracts.

Bank ownership and executive perquisites: New evidence from an emerging market

Direct bank ownership is a common practice in emerging markets. The current paper studies how bank ownership affects firm performance through corporate executive perquisites (perks) in China, a leading emerging economy. In addition to common factors known to influence the level of executive perks, we find a significantly positive link between bank ownership of company shares and executive perquisites. Further analyses suggest that higher level of executive perquisites hurt firm operating efficiency. Specifically, perks are positively associated with interest rate paid by the firms. We find some evidence consistent with the notion that the conflict of interests that banks face as both lenders and shareholders in the emerging markets induces banks to play less effective monitoring if they are concerned with the security of their loans or aim to obtain better arrangement for their loans. Our results reveal a particular mechanism through which bank ownership influences firm decisions and performance.

Executive perks: Compensation and corporate performance in China

Many studies have examined CEO compensation in developed countries, where a long tradition of disclosure renders data readily available. In emerging economies, particularly in China, where market-based compensation is a relatively new phenomenon, there are few studies of CEO compensation. In addition, information on the use of non-cash compensation is almost absent. Building on the general literature on CEO compensation, and Chinese economic and management studies, this article singularly contributes to the extant literature by (1) examining the motivational determinants of CEO perk compensation, on the one hand, and (2) exploring the relative contribution of perks to performance. We anticipate that perks can serve two roles in China: (1) to provide incentives to deter managerial shirking, and (2) to facilitate work and improve production. We find that perks are positively associated with current and future returns on assets, supporting the view that some types of perks may improve firm profitability and/or that perks are paid as a bonus to reward performance. Our findings from stratified samples suggest that perks may incentivize managers, even after controlling for firm fundamentals, such as firm size, growth opportunity, and leverage.

Corporate Governance and Executive Perquisites: Evidence from the New SEC Disclosure Rules

The Securities and Exchange Commission (SEC) amended its rules on executive compensation disclosure in 2006 to provide more transparent disclosures to investors regarding stealth compensation items (e.g., executive perks and pensions). In order to shed additional light on the mixed results from prior research, we re-examine 608 S&P 1500 firms' 2007 proxy statements to determine if executive perquisites reflect agency problems (Yermack 2006) or whether they serve a legitimate purpose (Rajan and Wulf 2006). Consistent with the agency cost argument, we find that firms with weak corporate governance are more likely to award perquisites to executives. In additional tests, we document that weakly governed firms that hid large amounts of CEO perquisites prior to the new rules experienced a negative market reaction after their proxy statements were released, and that a small number of firms with abnormally high CEO compensation prior to the new rules reduced or eliminated perquisite programs following the new rules. These results suggest that the SEC's expanded disclosure requirements are informative and useful to capital market investors in their attempts to detect the misappropriation of firm resources by weakly governed firms, but that the expanded SEC requirements have been politically costly for some firms.

Are perks purely managerial excess?

A widespread view is that executive perks exemplify agency problems—they are a route through which managers misappropriate a firm's surplus. Accordingly, firms with high free cash flow, operating in industries with limited investment prospects, should offer more perks, and firms subject to more external monitoring should offer fewer perks. The evidence for agency as an explanation of perks is, at best, mixed. Perks are, however, offered in situations in which they enhance managerial productivity. While we cannot rule out the occasional aberration, and while we have little to say on the overall level of perks, our findings suggest that treating perks purely as managerial excess is incorrect.