Long-term Performance Measures Research Articles

Disturbing the Quiet Life? Competition and CEO Incentives

ABSTRACT Although it is well understood that product market competition acts as a disciplining mechanism that reduces inefficiencies, our understanding of the implications for firms’ incentive design choices is still limited. We use a comprehensive new measure of competition and examine its effect on four major choices: CEO equity portfolio incentives, annual bonus plan incentives, choice of performance measures, and difficulty of financial performance targets. We find that competition reduces firm profits and total CEO compensation, including equity grants, which then also weakens portfolio incentives. Firms respond by adjusting annual bonus plans to restore incentives. Specifically, we find that competition goes together with stronger bonus plan incentives, more challenging annual performance targets, and a greater emphasis on long-term performance measures. Finally, we show that competition increases performance relative to annual bonus targets, which we interpret as evidence that CEOs work harder but get paid less in highly competitive environments. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M41; M52.

Who Cares About the Future? Short- and Long-Term Performance Measures and Their Impact on Firm Success

Finding an incentive system that optimally controls managerial effort and improves firm performance is an evergreen issue in both research and practice. Corporate governance recommendations and practical implementations aim at preventing short termism and promoting broad yet individual effort assessment. Nevertheless, their benefits are less clear and might reverse in reality. This paper presents comprehensive evidence for the interference of short- and long-term performance measures based on panel data from German public companies’ remuneration reports. The findings show that short-term orientation is not necessarily harmful, but individually negotiated goals can encourage managerial selfishness to the detriment of the firm.

The operative profit margin and interest cost in retail food

Both theoretical and practical importance have recently been attached to an analysis of the operating profit margin or earnings before interest, taxes, depreciation and amortization (EBITDA margin) as a measure of the long-term performance of companies. In the integrated financial reporting it is presented through various indicators based on it. In view of this, we have made a comparative analysis of the operating profit margin and its impact on the performance of food trade companies in Serbia and comparable countries. Under the influence of different factors, the dynamics of the size of the operating profit margin of food trading companies in Serbia varies from comparable global food retailers in various countries. Based on the obtained results of empirical research, we can also conclude that the EBITDA margin of the leading food trading companies in Serbia is lower than the in analyzed comparable food retail trade companies from the developed market economies. It points to the conclusion that it is necessary to efficiently manage revenues, costs, profit, assets, and financial structure in order to improve the performance of food trading companies in Serbia in the future. The general conclusion is that it shows a growth tendency and is, nevertheless, lower in comparison to food trading companies from countries of a developed market economy. In order to increase the operating profit margin, as a measure of long-term performance, it is necessary to manage the financial structure of the food trading companies in Serbia as effectively as possible.

The Analysis of the Operative Profit Margin of Trade Companies in Serbia

Both theoretical and practical importance has recently been attached to an analysis of the operating profit margin as a measure of the long-term performance of companies. In the integrated financial reporting it is presented through various indicators based on it. In view of this, we have made a comparative analysis of the operating profit margin and its impact on the performance of trade companies in Serbia and comparable countries. The general conclusion is that it shows a growth tendency and is, nevertheless, lower in comparison to trading companies from countries of a developed market economy. In order to increase the operating profit margin, as a measure of long-term performance, it is necessary to manage the financial structure of the trading companies in Serbia as effectively as possible.

Getting compensation right - The choice of performance measures in CEO bonus contracts and earnings management

This paper examines whether the choice of performance measures in CEO bonus compensation contracts is associated with earnings management. From a sample of FTSE350 Index firms over the period of 2005–2014, we investigate the relationship between earnings management, through discretionary accruals and real activities management, and (1) the use of and extent of reliance on financial and non-financial performance measures in CEO bonus contracts; and (2) the use of long-term and short-term measures in CEO bonus contracts. We find less income-increasing manipulation through discretionary accruals and expenses when non-financial performance measures (NFPMs) are used alongside financial performance measures (FPMs) and when the NFPMs are used to a larger extent than FPMs. Furthermore, we find less discretionary accruals when long-term performance measures are used. This implies that non-financial and long-term measures encourage executives to work towards the long-term success of the company rather than their own short-term reward.

Replacing Executive Equity Compensation: The Case for Cash for Long-Term Performance

I argue that executive equity pay in U.S. public firms is undesirable and should be replaced with cash awards for attaining long-term performance criteria. Paying top executives in equity (stock and stock options) is the most significant reform of executive compensation in our generation, universally welcomed not only by firms but also by academics, investors, and policy makers. Yet I argue that equity compensation is undesirable. It provides perverse incentives for managers to destroy shareholder value and behave manipulatively and recklessly. It is also economically wasteful, and its wastefulness, which is exacerbated by agency costs and cognitive biases, significantly contributes to the immense explosion of executive compensation. Instead, I suggest a radical proposal: to replace such equity pay arrangements with carefully designed cash-for-performance schemes in which executives are rewarded in cash for attaining predetermined long-term performance measures. I further recommend that this reform be implemented systemically and that the tax and disclosure rules that are applied to cash incentive remuneration be placed on a level playing field with those that are applied to equity incentive pay. This reform is expected to eliminate the significant costs of equity compensation and make incentive pay more effective, transparent, cheap, and better tied to performance, while retaining the limited incentive benefits generated by current equity compensation arrangements.

Performance Analysis of Wavelength Division Multiplexing Asynchronous Internet Router Employing Space Priority Mechanism under Self-Similar Traffic Input—Multi-Server Queueing System with Markovian Input and Erlang-k Services

In this paper, we analyze the queueing behaviour of wavelength division multiplexing (WDM) Internet router employing partial buffer sharing (PBS) mechanism with self-similar traffic input. In view of WDM technology in networking, each output port of the router is modelled as multi-server queueing system. To guarantee the quality of service (QoS) in Broadband integrated services digital network (B-ISDN), PBS mechanism is a promising one. As Markov modulated Poisson process (MMPP) emulates self-similar Internet traffic, we can use MMPP as input process of queueing system to investigate queueing behaviour of the router. In general, as network traffic is asynchronous (unslotted) and of variable packet lengths, service times (packet lengths) are assumed to follow Erlang-k distribution. Since, the said distribution is relatively general compared to deterministic and exponential. Hence, specific output port of the router is modelled as MMPP/Ek/s/C queueing system. The long-term performance measures namely high priority and low priority packet loss probabilities and the short-term performance measures namely mean lengths of critical and non-critical periods against the system parameters and traffic parameters are computed by means of matrix-geometric methods and approximate Markovian model. This kind of analysis is useful in dimensioning the router under self-similar traffic input employing PBS mechanism to provide differentiated services (DiffServ) and QoS guarantee.

Effects of salinity and particle concentration on sediment hydrodynamics and critical bed-shear-stress for erosion of fine grained sediments used in wetland restoration projects

Abstract. Sea-level rise, the increasing number and intensity of storms, oil and groundwater extraction, and coastal land subsidence are putting people and property at risk along Louisiana’s coast, with major implications for human safety and economic health of coastal areas. A major goal towards re-establishing a healthy and sustainable coastal ecosystem has been to rebuild Louisiana’s disappearing wetlands with fine grained sediments that are dredged or diverted from nearby rivers, channels and lakes to build land in open water areas. A thorough geo-hydrodynamic characterization of the deposited sediments is important in the correct design and a more realistic outcome assessment of the long-term performance measures for ongoing coastal restoration projects. This paper evaluates the effects of salinity and solid particle concentration on the re-suspension characteristics of fine-grained dredged sediments obtained from multiple geographic locations along the Gulf coast. The critical bed-shear-stress for erosion has been evaluated as a function of sedimentation time. The sediment hydrodynamic properties obtained from the laboratory testing were used in a numerical coastal sediment distribution model to aid in evaluating sediment diversions from the Mississippi River into Breton Sound and Barataria Bay.

Developing guidelines for independent and competent directors using what we have learned from research and company examples

These guidelines are developed for independent and competent Board Directors: Directors must have no material relationships with the company over the past year. Directors should have business savvy, a shareholder orientation, and a genuine interest in the company. Pay for performance, not presence, and use a mix of short and long-term performance measures for Directors’ compensation. Evaluate Directors’ performance over a three year period, using both stock price and accounting performance. Use claw-back provisions for Board members’ compensation if the firm does poorly, compared to its peers over this period. There should be a mix of skills for Board members, such as industry knowledge, experience, and expertise in financial accounting, risk management, and cyber security. There should be term and age limits for Board members. There should be women on Boards.

On Uneven Ground: How Corporate Governance Prioritizes Short-Term Speculative Investments, Impedes Productive Investments, and Jeopardizes Productivity Growth

The economic recovery after the Great Recession highlighted a continuous divergence between soaring profits and lagging investment. These trends are related at the corporate level, where corporate managers have stronger incentives to pursue short-term profit-seeking activities than to invest in longer-term productive activities, such as hiring and training people and investment in physical infrastructure. This prioritization results because the corporate governance system is biased towards the short run. The policy goals that we discuss aim to find a better economic balance between short-run and long-run goals by defining long-term performance measures and finding a better balance in the incentives of short-run and long-run oriented corporate stakeholders.

Channel-quality-based opportunistic scheduling with ARQ in multi-rate wireless networks: modeling and analysis

In this paper, we develop a novel framework for analyzing radio link level performance for opportunistic scheduling with automatic repeat request (ARQ)-based error control in multi-rate wireless networks. The multi-rate transmission is assumed to be achieved through adaptive modulation and coding (AMC) to adjust the transmission rate according to the channel condition. The residual error effect due to each AMC setting is counteracted by means of a limited persistence ARQ protocol. The novelty of the proposed analytical framework lies in the fact that we are able to derive complete statistics (in terms of probability mass function) for both short-term and long-term performance measures such as system throughput, per-flow throughput, inter-success delay under both uncorrelated and correlated wireless channels. These performance measures can also be obtained in case of non-identical channels for different users. Analytical results are validated through simulations and the impacts of channel behavior on the different radio link level performance metrics are investigated.

Varietal Differences in Potassium Uptake by Barley

Potassium influx isotherms were obtained for 10 cultivars of barley using plants which had been grown with or without potassium (high K(+) and low K(+) plants, respectively), and the cultivars ranked with respect to K(m) or V(max) values for influx with a view to using these rankings as a predictive measure of long term performance under conditions of potassium-limited growth. Analyses of these rankings revealed significant differences between cultivars. Net uptake rates for low K(+) plants, determined over a 24-hour period, confirmed the differences between upper (Herta) and lower (Conquest) ranked cultivars, and established similar differences in the rates of translocation to the shoot. Efflux analyses showed no differences in potassium efflux from the cytoplasm or from the vacuole for these cultivars. Growth rate studies under different conditions of potassium limitation indicated, with some exceptions, strong positive correlations between ranks accorded cultivars on the basis of influx kinetics and those based upon growth rates.