Higher CEO Compensation Research Articles

환경경영이 경영자보상에 미치는 영향 : 기관투자자 및 개인투자자를 중심으로

[Purpose]This study aims to analyze the impact of ESG management, particularly carbon emission reduction performance, on CEO compensation and to empirically examine the differential impact by investor type. [Methodology]The study analyzed manufacturing firms listed on the Korea Exchange from 2013 to 2022, using financial and environmental data. Multivariate regression analysis was applied to understand the relationship between carbon emission performance and executive compensation, and to assess the differential impact between institutional and individual investors. [Findings]The study found that higher carbon emission performance is associated with higher CEO compensation, with a stronger positive relationship in firms with a higher proportion of institutional investors. [Implications]Incorporating carbon emission reduction performance into CEO compensation can incentivize sustainable management, with institutional investors playing a crucial role in enhancing firms’ ESG performance and improving corporate sustainability.

Digital regulation and multinational tax avoidance: evidence from Common Reporting Standard

ABSTRACT We adopt the implementation of the Common Reporting Standard (CRS) as a quasi-natural experiment to study the impact of digital regulation on multinational tax avoidance. Using a sample of Chinese listed firms from 2011 to 2022, we find that multinationals affected by the CRS engage in less tax avoidance. Mechanism analysis indicates that digital regulation reduces tax avoidance by improving information transparency. Furthermore, the effect is more pronounced for firms with weaker external monitoring and higher CEO compensation.

Auditor Tenure, CEO Compensation and Earnings Management: Evidence from Jordan

The purpose of this study is to examines the impacts of auditor tenure on earnings management and if the CEO remuneration moderates this relationship. The sample includes all firms listed on the Amman Stock Exchange from 2015 to 2019 with the exclusion of the financial sector. The fixed-effect model, robustness testing to ensure data integrity and alternative measurements to ensure reliable results were used in this study. After examining the auditor tenure in this study, the study found that there is a negative and significant association with earnings management. In additional, this study showed that the combined influence of CEO compensation and auditor tenure had a negative and significant impact on earnings management. In order to reduce earnings management by decreasing opportunistic behavior and conflicts of interest, this study emphasizes the importance of high CEO compensation and auditor tenure, which is advantageous to investors, shareholders, political, and stakeholders in Jordanian firms as well as auditing firms.

The Greed-Based Path From CEO Compensation to Job Seekers’ Perceptions

Large CEO pay packages have become the subject of increased negative scrutiny among the media and general public, suggesting that CEO compensation may affect the firm by influencing stakeholder perceptions and behaviors. Although some recent research has begun to study the association between high CEO compensation and CEO greed, whether and how CEO greed is perceived by stakeholders remains to be examined. We develop theory on CEO compensation and broaden our understanding of its consequences by examining whether and how CEO compensation leads to perceptions of CEO greed. Focusing on job seekers, a population especially likely to attend to information about firms and CEOs, we find evidence that high CEO compensation leads to perceptions of CEO greed among job seekers and that such perceptions lowers job seekers’ attraction to the CEO’s firm. Moreover, we find that these relationships are weakened for job seekers who themselves exhibit high levels of greed.

Peer benchmarking and CEO compensation: An examination of the community structure of the compensation peer network

AbstractResearch Question/IssueThe increase in executive pay has been attracting attention to the practice of peer benchmarking, which is commonly used to determine CEO compensation. Using a network approach, we construct and analyze the compensation peer network and examine how the structure of the network influences CEO pay.Research Findings/InsightsUsing data on public firms in the period between 2006 and 2020, we find that the peer network exhibits strong community structure and that bridging across communities influences CEO pay. Specifically, CEO pay increases by approximately $10 million as the number of bridging ties increases from 30 to 100, which indicates that obfuscation can result in inflated CEO pay and supports the managerial power perspective.Theoretical/Academic ImplicationsWe empirically distinguish the predicted effect of peer benchmarking on CEO pay as outlined in the market for executive talent and the managerial power perspectives. We show that firms may avoid scrutiny and offer high CEO compensation when they either have a very small number of targeted bridging ties or a very large number of diffused, nontargeted bridging ties in the peer network.Practitioner/Policy ImplicationsThe intent of peer benchmarking was to make CEO compensation practices more transparent, legitimate, and functional; however, our findings indicate that these intentions have not been fully realized and instead benchmarking can be used to inflate CEO pay while avoiding stakeholder scrutiny through obfuscation. These insights provide an opportunity to policy makers to be more effective in encouraging additional transparency and stronger justification for boards' choice of peers.

Executive Compensation and Firm Performance Relationship

The relationship between executive compensation and firm performance is well documented in the existing literature. However, in the case of Asia Pacific firms, the least attention is paid while investigating this relationship. This study examines the relationship between executive compensation and firm performance in the Asia Pacific firms throughout 2007–2019. We use the total salary paid to chief executive officers and equivalent, the total compensation paid to the CEO, and the equivalent and total salaries and bonuses paid to the CEO and equivalent as a measure of executive compensation. For the firm performance, both accounting measure (ROA) and market measure Tobin’s [Formula: see text] (TQ), and various control variables were used. We found that a firm performance has a positive relationship with total compensation paid to CEO and total salaries and bonuses paid to the CEO. Our results support the agency theory by confirming that higher CEO compensation will lead towards higher firm performance by motivating executives to maximize shareholder benefits. However, the total salary does not have any significant relationship. The overall result of the study indicates that the results of the Asia Pacific regions complement the results obtained in another part of the developed world. The results are supported by the social comparison theory. The study has a practical implication for policymakers, business owners, shareholders, and executives by suggesting aligning their business strategies based on compensation parameters for achieving the best firm performance.

The impact of relative CEO compensation on not-for-profit contributions

PurposeThe authors extend research suggesting that external funders reduce their contributions to not-for-profit (NFP) organizations in response to media-reported CEO compensation levels.Design/methodology/approachEmploying a maximum archival sample of 44,807 observations from US Form 990s, the authors comprehensively assess the extent that high relative NFP CEO compensation is associated with decreases in future contributions.FindingsThe authors find that donors and grantors react negatively to high relative CEO compensation but do not react adversely to high absolute executive compensation. Contributors seem to take issue with CEO compensation when they perceive it absorbs a relatively large portion of the organizations’ total expenses, which may hinder the NFP’s mission. Additional findings suggest that excess cash held by the NFP significantly exacerbates the negative baseline relationship between future contributions and high relative CEO compensation. Finally, both individual donors and professional grantors are sensitive to cash NFP CEO compensation levels, but grantors are more sensitive to CEO noncash compensation.Research limitations/implicationsThe authors’ data are focused on larger NFP organizations, so this limits the generalizability of the study. Furthermore, survivorship bias potentially influences their time-series investigations because a current year large-scale decrease in funding due to high relative CEO compensation may cause some NFP firms to drop out of the sample the following year due to significant funding reductions.Originality/valueThe study makes three noteworthy contributions to the literature. First, the study documents that the negative association between high relative CEO compensation levels and future donor and grantor contributions is much more widespread than previous literature suggested. Second, the authors document that high relative CEO compensation levels that trigger reductions in future contributions are significantly exacerbated by excess cash held by the NFP. Finally, the authors find that more sophisticated grantors are more sensitive to noncash CEO compensation levels as compared with donors.

Excessive CEO Compensation and Effort Contributions in the Non-Profit Sector

This study examines whether high executive compensation has adverse effects on volunteers' willingness to make labor contributions to nonprofit organizations. Using compensation information in IRS Form 990, we find that high CEO compensation negatively influences the number of future volunteers working for the nonprofit organization if executive compensation is considered to be excessively high, or if there is media attention regarding the CEO's compensation. These effects are most pronounced in smaller and more charitable organizations. Hence, our study presents previously undocumented implications of high executive compensation levels in the nonprofit sector.

Independent executive directors: How distraction affects their advisory and monitoring roles

Active corporate executives are a popular source of independent directors. Although their knowledge, expertise, and network can bring value to firms on whose boards they sit, independent executive directors may be more likely to be distracted than other directors due to their outside executive roles. Using newly constructed data linking independent directors to their employers, we identify periods when employers' poor performance may distract them from board service. We find that firms with distracted independent executive directors have lower performance and value, higher CEO compensation, reduced CEO turnover-performance sensitivity, lower earnings quality, and lower M&A performance. These adverse effects are mainly driven by distracted directors who sit on relevant committees, and are stronger for small boards.

Reference by Availability? – The Influence of Network Ties on CEO Compensation Setting

In this paper we study the influence of board network ties on CEO compensation. Taking a board network approach we assume that ties to highly compensated CEOs of other firms become important reference points for the compensation of the focal firm’s CEO. Specifically, we hypothesize that board network ties to above average paid CEOs will result in above average pay for a tied-to CEO of the focal firm. In addition, we account for ownership concentration as a boundary condition and analyze which components of the compensation package are affected by these reference points. Testing our hypotheses within a complete set of board network ties for all large publicly listed firms in Germany (HDAX 100) between 2006 and 2011 we find that once information on high CEO compensation travels through the network and is in the minds of those involved in determining the focal firm’s CEO pay, it biases decision-making on CEO compensation.

CEO compensation and performance in US private foundations

AbstractIn a large sample of US private foundations, we examine the association between CEO compensation and an accounting‐based measure of performance, administrative efficiency. We document a positive pay–performance association across time within foundations, but a negative association across foundations. We interpret our evidence as follows: some foundation boards reward CEOs for high administrative efficiency, which results in a positive pay–performance association. However, some foundations are poorly monitored relative than others, resulting in higher CEO compensation and lower efficiency.

CEO COMPENSATION AND CELEBRITY EARNINGS: AN ANALOGICAL COMPARISON

ABSTRACT This study examines whether excessively high CEO compensation and celebrity earnings are related to work performance or determined by market supply and demand factors. It seeks to compare the high salaries of top executives with the high earnings of popular movie celebrities based on characteristics such as pay levels, relationship between earnings and work/project success, and the influence of market supply and demand factors. Using a social media survey, this study found that respondents believed that executives and celebrity should demonstrate outstanding knowledge and skills, and that their compensations are overstated. Interestingly, the number of respondents who stated that CEO salary should be tied to company performance is greater than those who agreed that celebrity earnings should align with box office returns. The findings of this study suggest that overpayment to CEOs and celebrities results primarily from market factors rather than from work-related successes. Keywords CEO Compensation; Celebrity Earnings

Network connections, CEO compensation and involuntary turnover: The impact of a friend of a friend

We show that hard to observe, indirect connections between a CEO and “independent” board members are associated with higher CEO compensation. While we find this result for the “friend of a friend” connection, we do not find it for direct connections, i.e. friends sitting on the board. We postulate that this differential result is caused by directors with readily observable connections to the CEO being wary of provoking outrage. In contrast we find both types of connections associated with reduced involuntary CEO turnover, suggesting that outrage is not as big a concern, e.g., compensation is the foci of stakeholders.

The Cult of the CEO: The Above Averagee Effect

Many CEOs earn more in one workday than the average worker makes in an entire year. The question is whether these extremely high CEO compensation packages undervalue the contributions that other employees make to the success of the company. What will the effect of excessive CEO pay have on employee morale? It also raises the question why companies with high CEO: worker pay ratios often have lower shareholder returns than companies with lower ratios. This article explores the reasons why such pay discrepancies continue to exist. The pros and cons of these excessive compensation packages are discussed, including the “above average” effect — and how this “above average” effect can have such a dramatic, inflationary impact on compensation packages. As self-policing by the CEO community seems unlikely, a number of countervailing measures are suggested that could keep the compensation game within reasonable boundaries.

The impacts of accrual-based and real earnings management on executive compensation: evidence from Chinese public firms in the private sector

This paper investigates whether high CFO or CEO compensation follows earnings management practices in Chinese public firms in the private sector. We find that while accrual-based earnings management does not impact executive compensation, real earnings management leads to high executive compensation. In addition, the effect of real earnings management is particularly strong for CEO pay, consistent with the notion that CEO pressure is the key driver of earnings management. Moreover, we find that this association is more pronounced for firms with a powerful CEO as well as for firms with a large wedge between control and cash flow rights.

Customer Concentration and CEO Compensation

Customer concentration affects CEO compensation through two possible channels: first, a more concentrated customer base raises firm risk, for which CEO requires higher compensation; second, CEO is likely to hold customer ties, and a more concentrated customer base enables CEO to have more bargaining power and subsequently a higher compensation. Both channels point to a positive relationship between customer concentration and CEO compensation. Through a large sample of US firms in the 1992-2009 period, we find strong evidence supporting this relationship. Specifically, the presence of a major corporate customer is associated with 4.2% higher CEO compensation, with cash pay being 3.6% higher and equity pay being 10.5% higher. This represents an additional annual compensation of around 150,000 dollars for the average corporate CEO working for a firm with a major customer. Our findings are robust even if we account for endogeneity by employing propensity score matching and instrumental variable analysis.

Distracted Directors: Evidence From Directorss Outside Employment

Active corporate executives are a popular source of independent directors. Although their knowledge, expertise, and network can bring value to firms on whose boards they sit, independent executive directors may be more likely to be distracted than other directors due to their outside executive roles. Using newly constructed data linking independent directors to their employers, we identify periods when employers’ poor performance may distract them from board service. We find that firms with distracted independent executive directors have lower performance and value, higher CEO compensation, reduced CEO turnover–performance sensitivity, lower earnings quality, and lower M&A performance. These adverse effects are mainly driven by distracted directors who sit on relevant committees, and are stronger for small boards.

Do Corporate Governance and Social Performance Differ between Family-Owned and Non-Family-Owned Businesses in Taiwan-Listed CSR Companies?

The objective of this analysis into examines the social performance and corporate governance differences between family-owned firms and non-family-owned firms, along with the impact of corporate governance variables. The findings herein present that non-family-owned firms ?CSR (corporate social responsibility) affect company performance, but that of family-owned firms does not. We show that duality to ROA is positively significant in family firms, meaning that it is very convenient to conduct polity to do whatever one wants to do to help a firm create more profit and improve ROA when the leader of a family firm is also the company chairman same as the chair-man. On the other hand, in a non-family-owned firm, board size and gender are negatively significant to firm performance. High CEO compensation encourages managers to intensively target high performance in order to get more profit for the firm.

Shareholders have a say in executive compensation: Evidence from say-on-pay in the United States

We examine the 2011 and 2012 shareholder votes soon after the implementation of the SEC regulation that requires a non-binding general shareholder vote on executive compensation, or “say-on-pay” (SOP). Firms with high SOP approval have better performance and returns, higher CEO ownership, lower institutional ownership, lower CEO compensation, lower return volatility, and better accounting quality than do firms with high SOP dissent. Different from that noted in previous shareholder proposal studies and research on SOP in the United Kingdom, shareholder discontent is associated with high or excessive CEO compensation. We also find that SOP rejection votes are more sensitive to stock and stock option compensation. Finally, boards respond to SOP rejection votes by reducing the growth of CEO compensation, and shareholders respond positively to these changes by voting to approve SOP, regardless of firm performance. Our results provide evidence that SOP general shareholder voting rights could be an effective mechanism of corporate governance.

The configurational effects of board monitoring and the institutional environment on CEO compensation: a country-level fuzzy-set analysis

This study examines the causal complexity of how the effectiveness of board monitoring influences CEO compensation around the world. Previous research drawing from the managerial power theory and ‘increased career risks’ perspective offer alternative arguments for how low and high levels of effective monitoring by boards of directors influence CEO compensation. Adopting a configurational approach using fuzzy-set qualitative comparative analysis, we explore the idea that there are multiple causal paths leading to high levels of CEO compensation, such that theoretical logic from both theories may be relevant contingent upon the institutional environment in which the relationship is embedded. Our findings in a sample of 38 countries suggest that high CEO compensation is an outcome of both the presence and absence of effective board monitoring depending upon how it combines with minority investor protections and the cultural dimensions of power distance, uncertainty avoidance, and individualism, as well as the overall stock market value. Specifically, in countries with high levels of effective board monitoring, high CEO compensation will be more likely when the country’s culture is high in uncertainty avoidance, low in power distance and when there are strong protections for minority investors. Whereas in countries with low levels of effective board monitoring, high CEO compensation will be more likely when power distance is high and uncertainty avoidance is low and when there are weak protections for minority investors. Our country-level study highlights the theoretical strengths of employing a configurational approach to explore the complex interrelationships of governance mechanisms and the contexts in which they manifest.