Remuneration Disclosure Research Articles

Shareholder say on pay and CEO compensation: three strikes and the board is out

AbstractFrom 2011 in Australia, if over 25% of shareholders vote against a non‐binding remuneration resolution, firms are awarded a ‘strike’. We examine 237 firms that receive a strike relative to matched firms, and find no association with any measure of CEO pay. However, we do find that strike firms have higher book‐to‐market and leverage ratios, suggesting that the remuneration vote is not used to target excessive pay. We also find that firms respond to a strike by decreasing the discretionary bonus component of CEO pay by 57.10% more than non‐strike firms and increasing their remuneration disclosure by 10.95%.

Directors’ Remuneration Disclosure Transparency in Nigeria and the Influence of Block Share Ownership

This paper examines directors’ remuneration disclosure transparency in an emerging economy (Nigeria). We specifically examine how the block share ownership influences the level of transparency in the disclosure of directors’ remuneration in a sample of companies listed on the Nigerian Stock Exchange in 2012. Using ordinary least squares and binary logistic regressions to examine the relationship, we find that block share ownership is associated with lower transparent disclosure of directors’ remuneration. The result shows a positive relationship between audit quality and transparent disclosure of directors’ remuneration. The study finds that the transparency score is less than 40%. On the whole, we provide evidence that managers in Nigerian Listed Companies are inclined not to make voluntary disclosure of their remuneration to the public. This paper has implication for policy makers and regulatory authorities in Nigeria on the need to embark on remuneration disclosures reforms so as to make directors’ remuneration disclosure mandatory for Nigerian Listed Companies to make it comparable with accepted global good practice. This study contributes to the remuneration disclosure transparency literature by providing support for the expropriation hypothesis in the behaviour of block shareholders from an emerging economy whose market is very much different from those of developed economies.

Disclosure practices of foreign and domestic firms in Australia

Even while straddling the global economy, multinational corporations (MNCs) need to adapt to different institutional regimes in host country markets in which they operate. This research examines the extent to which MNC-subsidiaries are embedded in their local institutional context in terms of how they pursue local legitimacy and respond to local laws and standards of disclosure of executive remuneration in the host country. Drawing attention to key socio-economic influences on foreign MNC-subsidiaries, we examine whether global MNCs respond to disclosure requirements in a host country and address a higher level of information asymmetry associated with multinational operations. The analysis of disclosure levels of MNC-subsidiaries vis-à-vis domestic firms suggests that, other things being equal, MNCs are more responsive to increased disclosure requirements than their local counterparts if they have substantial economic interactions with domestic product-markets. These results demonstrate that MNCs are willing to incur the marginal cost of increasing disclosure if commensurate benefits justify it. Another interesting finding relates to the negative association between legal system type (common law) of MNC's parent country and disclosure level of director and executive remuneration. It highlights that MNC-subsidiaries with higher regulatory (institutional) distance disclose better level of remuneration to gain external legitimacy and reduce their liability of foreignness.

Remuneration Committee Existence and Effectiveness: A Study on Their Impact on Voluntary Narrative Executive Remuneration Disclosure

Voluntary disclosure in narrative format is generally seen as an important governance mechanism through which an organisation communicates with its stakeholders to provide information, gain legitimacy and demonstrate accountability. This paper investigates the relationship between the existence of a remuneration committee (RCX) and it’s effectiveness (RCE) on the voluntary disclosure of information relating to executive remuneration action in narrative format. Our study utilises data from Top 200 Australian Securities listed (ASX) firms and focuses on such disclosure during a critical period i.e. the global financial crisis years (2007 to 2011) when executive remuneration came into significant scrutiny. We find both the existence and effectiveness of a remuneration committee plays a significant role in the voluntary disclosure of executive remuneration in narrative format (VDER).

The role of codetermination in shareholder oriented corporate governance reform: the case of executive remuneration disclosure

This paper examines the influence of employee representatives in German publicly listed firms' supervisory boards on the likelihood that firms adopt a corporate governance code provision that recommends the disclosure of individualised remuneration arrangements of top management team members. My theoretical perspective suggests that depending on the influence of labour representatives in the boardroom, labour influence and individualised top management team remuneration disclosure may be viewed as either complements or substitutes in firms' internal corporate governance structure. The results provide support for my theory and show that there exists an inverted U-shaped effect of the level of labour influence on the supervisory board on the likelihood that firms thoroughly reform their top management remuneration disclosure practices.

The Determinants of Disclosure of Individual Executive Director's Remuneration: A Malaysian Perspective

Abstract This paper aims to examine the determinants of disclosure of individual executive directors’ remuneration in Malaysia. The individual disclosure of executive directors’ remuneration was continuously tracked from 2000 to 2008, a period of evolving regulatory framework. Using panel logit regression, the study incorporated agency theory, legitimacy theory, signaling theory and proprietary costs into the research framework. The multivariate analysis showed that there were significant associations between family ownership, government ownership, director ownership, proportion of independent directors, audit quality and company size and the disclosure of individual executive director's remuneration.

Collibration as an alternative regulatory mechanism to govern the disclosure of director and executive remuneration in Australia

This paper explores an alternative approach to regulation for addressing corporate governance problems related to director and executive remuneration disclosure. We draw on the concept of collibration, conceived by Dunsire as an approach to managing tensions between opposing forces in social arena. We explore the application of collibration in the development of a regulatory framework, composed of a mix of state regulation and self-regulation, for corporate governance in Australia. Thereafter, we examine the impact of the mixed regulation developed through collibration on remuneration disclosure behaviour in Australian companies. We find that improvement in corporate disclosure is primarily driven by the establishment of remuneration committees and appointment of reputable auditors. Our research demonstrates the effectiveness of collibration in developing a regulatory framework that aligns state regulation designed to protect shareholder interests with self-regulation, about which little was known in the literature.

Directors' remuneration: A comparison of Italian and UK non-financial listed firms' disclosure

Directors' remuneration is a key issue for both academics and policymakers. It has caused enormous controversy in recent years. This study uses a comprehensive index to analyse the disclosure of directors' remuneration in Italian and UK listed firms. It finds that the level of voluntary disclosure is significantly associated with firm-specific incentives, such as the demand for information from investors and the need for legitimacy. It finds that the level of voluntary disclosure is significantly higher in the UK than in Italy and that firm-specific incentives to disclose voluntary information differ according to the institutional setting in which a firm operates. In the UK, firm-specific incentives mostly come from the demand for information, estimated with the level of ownership diffusion, and the need for legitimacy generated by poor market performance and shareholders' dissent. In Italy, firm-specific incentives seem to be represented by the need for legitimacy generated by media coverage. This study also provides evidence that, in both countries, the information disclosed in corporate documents does not allow readers to obtain a comprehensive picture of directors' remuneration. Bonuses are poorly disclosed even though they are a key element of directors' remuneration. This finding is clearly important for policymakers at European and national level.

Remuneration committee independence and CEO remuneration for firm financial performance

Purpose– As a result of the Australian Government Productivity Commission's recommendation to mandate remuneration committee independence for ASX300 companies, this study aims to investigate whether voluntary remuneration committee independence aligns chief executive officer (CEO) total pay and bonuses with firm financial performance.Design/methodology/approach– A series of hypotheses test the research question using multiple regressions for a sample of 143 ASX300 companies during 2001. This time was prior to strengthen corporate governance regulation, but after mandated executive remuneration disclosure, thus capturing varying levels of voluntary remuneration committee independence.Findings– This study shows firm size is an influential factor in the relationship under investigation. ASX300 large firm remuneration committees link CEO total remuneration and bonuses to firm financial performance. Smaller ASX firm remuneration committees do not link either type of CEO remuneration to performance despite remuneration committee independence. Findings are mixed for medium-sized ASX300 firms.Research limitations/implications– Limitations include the necessary time restriction to 2001 for sampling the ASX300 firms. The implication of this study's findings is that the proposed public policy for mandatory remuneration committee independence is not universally effective in linking CEO remuneration to firm financial performance for ASX300 firms.Originality/value– This study contributes to the limited research on voluntary remuneration committee independence in relation to CEO remuneration and firm financial performance in the Australian context.

The European Corporate Governance Framework: Issues and Perspectives

This is the first chapter in a volume on “Boards and Shareholders in European Listed Companies: Facts, Context and Post-Crisis Reforms” (M. Belcredi and G. Ferrarini eds., Cambridge University Press forthcoming 2013). We offer an overview of the volume, placing the same in the context of recent EU reforms and of corporate governance theory, and summarizing the main outcomes of the various chapters. In addition, we offer some policy perspectives based on the theoretical and empirical outcomes of the research project of which this volume is the product. We analyse four main topics in the corporate governance of European listed firms: board structure/composition and its interaction with ownership structure, board remuneration, shareholder activism and corporate governance disclosure based on the “comply-or-explain” approach. For each of them, this volume provides new evidence and derives specific implications, relevant for the policy debate. Basically, proposals aimed at increasing disclosure and accountability at the European level look generally well-grounded: this is true, in particular, for disclosure about managerial compensation and compliance with national governance codes based on the “comply-or-explain” principle. On the opposite, we suggest caution when evaluating proposals targeting specific governance arrangements, which may actually lead to unintended consequences. Even though the Commission has – so far – refrained from adopting an excessively intrusive stance, further analysis may be needed before intervening in the fields of board composition and shareholder activism.

Collibration as an alternative regulatory approach for remuneration governance: A contextual analysis of Australia

This article seeks to explore the potential of the process of collibration as it applies to the development of controls on the remuneration levels and arrangements for corporate directors in Australia. The study is guided by the research question ‘what approach should be adopted in developing a regulatory framework for corporate governance that aligns state regulation designed to protect shareholder interests with market oriented self-regulation?’ Corporate governance, being a social practice that is shaped by conflicting interests, calls for a flexible approach to its regulation. Drawing on the concept of ‘collibration’, which reconciles tensions between opposing forces – such as the principals and agents, we demonstrate how its application in Australia led to the development of a regulatory framework comprising a mix of state regulation and self-regulation to accommodate conflicting interests in the social practice of corporate governance. Collibration takes us away from the traditional dichotomy in this area, of self-regulation versus state regulation, and seeks to describe the process of balancing persuasive as well as mandatory controls, in an attempt to seek the optimum position in the regulation and governance of executive rewards. Focusing on the specific issue of improving disclosure of director and executive remuneration, we illustrate how development of a mix of state regulation and self-regulation was an application of collibration. By operationalising the concept of collibration we demonstrate its application in a regulatory setting in Australia, balancing tensions in principal- agency relationship. Our study highlights the need for priming of the social arena by an active engagement of conflicting market forces before introducing state-based legislation. For practitioners, it implies that caution should be applied when confronted with decisions about whether or not to reject government efforts for improving corporate governance.

Collibration as an Alternative Regulatory Mechanism for Corporate Governance in a Capitalist Economy

This paper explores an alternative approach to regulation for addressing corporate governance problems relating to director and executive remuneration disclosure. We draw on the concept of collibra...

Remuneration and Riots: Rethinking Corporate Governance Reform in the Age of Entitlement

Corporate governance reforms of the past 30 years have made our elite remuneration problems worse. Corporate governance initiatives during this period have created a regulatory edifice that has neutered executives and distanced shareholders from important internal governance matters, such as remuneration, while treating the disclosure of elite salaries as a legitimizing tool. In the public sector, the mimicking of private sector agency cost-reducing norms and transparency initiatives has had a similar accelerating effect on the salaries of the elite. The result in all sectors has been high elite pay, as neutered executives and public servants have sought remuneration as a proxy for power, prestige, and service. In turn, there has been a steady increase in public awareness of, and unhappiness about, elite remuneration. This article argues that the answer to remuneration problems lie in returning discretionary managerial power to executives and public servants, by removing agency cost-reducing initiatives. Real solutions are likely to be found by: ending quarterly financial disclosure; exempting public sector salaries from Freedom of Information requests; ceasing to use performance-related targets; reducing the influence of Non-Executive Directors; increasing the cost of exit for shareholders; allowing boards to use their powers to defend takeovers; utilizing average pay ratios and employee say-on-pay rights; and removing remuneration disclosure requirements.

The Communication of Director's Remuneration

This study investigates the extent of Malaysian directors remuneration disclosure in the annual reports based on individual pay for each director, band of pay, linkage to performance, and components of pay. The annual reports of 376 companies listed on Bursa Malaysia are randomly selected and analysed. The results reveal that most of the sampled firms communicate information about the directors pay in bands of RM50,000, together with the narration of linkages between the directors pay and performance in their annual reports. However, not many companies disclose information about individual directors pay, or separately disclose the salary and bonus components.

Disclosure, shareholder oversight and the pay–performance link

This paper investigates the effect of increased shareholder oversight and disclosure about executive remuneration on the pay–performance relation, while controlling for contemporaneous changes in corporate governance practice. Our sample consists of 240 ASX-listed firms with annual reports available for each year over the period 2001–2009, a period which straddles the timing of regulatory change. We initially document the conjectured improvements in remuneration disclosure and shareholder oversight in the form of the advisory vote on the remuneration report. Following, we find as predicted a general strengthening of the pay–performance relation over the study period, with the increased sensitivity of reported CEO remuneration to firm performance being primarily related to enhanced remuneration disclosure and the non-binding shareholder vote on the remuneration report. Our results lead us to conclude that enhanced oversight over executive remuneration arrangements brought about by regulatory change has positively impacted the executive remuneration process by strengthening the pay–performance relation and making the process appear more accountable.

Financial services remuneration in the UK

PurposeThe purpose of this paper is to explain the final version of the Remuneration Code, published by the Financial Services Authority (FSA) in December 2010, which deals with remuneration in the financial services industry and incorporates requirements contained in the latest version of the European Union (EU) Capital Requirements Directive (CRD3).Design/methodology/approachThe paper gives an overview of the Code, focusing on its scope; the deadlines for compliance; the constraints on variable remuneration; the proportional application of the Code through the division of businesses covered by the Code into four tiers, each with different compliance requirements; and voiding provisions – i.e. provisions which render certain contractual terms on variable remuneration void if they breach Code requirements. It also summarizes the related and new obligations on disclosure of remuneration, which were published by the FSA at the same time as the Code.FindingsThe overriding objective of the Code is to ensure that remuneration policies, procedures and practices do not undermine effective risk management.Practical implicationsNow the details have been published and deadlines for compliance set, it is imperative that those in the financial services industry with UK operations, whether in the UK or elsewhere, start taking steps straightaway to ensure that their remuneration policies, practices and procedures are compliant with the new regulatory regime.Originality/valueThe paper provides practical guidance from experienced securities lawyers.

Disclosure, Shareholder Oversight and the Pay-Performance Link

This paper investigates the effect of increased shareholder oversight and disclosure about executive remuneration on the pay-performance relation, while controlling for contemporaneous changes in corporate governance practice. Our sample consists of 240 ASX-listed firms with annual reports available for each year over the period 2001-2009, a period which straddles the period of regulatory change. We initially document the conjectured improvements in remuneration disclosure and shareholder oversight, in the form of the advisory vote on the remuneration report. Following, we find, as predicted, a general strengthening of the pay-performance relation over the study period, with the increased sensitivity of reported CEO remuneration to firm performance being primarily related to enhanced remuneration disclosure and the non-binding shareholder vote on the remuneration report. Our results lead us to conclude that enhanced oversight over the executive remuneration process brought about by regulatory change has positively impacted the executive remuneration process by strengthening the pay-performance relation and making the process appear more accountable.

Corporate governance in the Brazilian banking sector: A study of practices adopted by the boards

This study is an analysis of the best practices of corporate governance adopted by the boards of Brazilian banking institutions. The findings show that most banks adhere to the latest Brazilian Institute of Corporate Governance guidelines with regard to board size and to the standards required by BM&FBovespa in terms of independence. The banks studied are rigorous with regard to audits and control in the process of corporate governance and most have a diversified board with the positions of chief executive officer and chairman occupied by different individuals. Practices regarding disclosure of board member remuneration are still at an early stage of development with banks restricting disclosure to what is required by law.

The Determinants of Director Remuneration, Executive Tenure and Individual Executive Disclosure in North African IPO Firms

The Determinants of Director Remuneration, Executive Tenure and Individual Executive Disclosure in North African IPO Firms

The Impact of Board Composition and Ethnic Diversity on Director Remuneration, Tenure, and CEO Salary Disclosure in Sub Saharan Africa

The Impact of Board Composition and Ethnic Diversity on Director Remuneration, Tenure, and CEO Salary Disclosure in Sub Saharan Africa