Executive Remuneration Research Articles

Corporate governance and capital market development in the GCC: a comparative literature review

PurposeThis review provides a detailed analysis of corporate governance practices across Gulf Cooperation Council (GCC) countries, focusing on board characteristics, executive remuneration, capital markets and the integration of ethical and sustainable practices. It evaluates how these governance frameworks influence market performance, investor confidence and corporate sustainability within the region.Design/methodology/approachThe study synthesizes findings from 15 recent research studies, examining corporate governance mechanisms, board composition, executive compensation policies and their impact on market capitalization. The data were collected from major academic databases, including Google Scholar, Springer, Web of Science and Scopus.FindingsThe analysis exhibits both similarities and differences in corporate governance frameworks across GCC countries. Important findings include a universal mandate for the separation of chief executive officer (CEO) and chairman roles, varied board composition requirements and differing executive remuneration and transparency policies. Saudi Arabia and the United Arab Emirates (UAE) lead in market capitalization, reflecting advanced governance practices, though disparities exist among GCC countries. The review also notes the increasing alignment of corporate governance with corporate social responsibility (CSR) principles, especially in sustainability reporting and ethical practices, highlighting a growing commitment to long-term value creation.Originality/valueThis review uniquely synthesizes recent research on GCC corporate governance, offering insights on board structures, executive pay and market dynamics with a focus on ethical and sustainable practices. It provides valuable perspectives for stakeholders, policymakers and academics interested in enhancing governance frameworks in the region while contributing to the global discourse on aligning corporate governance with sustainability standards.

Exploring the Association Between Chief Executive Remuneration and Financial Performance: A South African Banking Perspective

This research aimed to determine whether there is an association between financial performance and chief executive officer (CEO) remuneration when South African banks are sampled. A quantitative research approach was applied using a descriptive research design. The research included a data range spanning over 10 years. Financial data were collected through the Integrated Real-time Equity System (IRESS). Multiple regression testing was performed using the Statistical Package for Social Science (SPSS). Correlation coefficients were measured, and multiple regression models were constructed. This study found that cashflow per share, market price per share and liquidity ratios were often identified as predictors of CEO remuneration. This research contributed to the body of existing knowledge by demonstrating that the remuneration paid to South African bank CEOs can be predicted by means of selected financial ratios. Limitations included that the census was small and only consisted of eight banks in total. This limitation was accommodated by expanding the time frame for data collection.

A Systematic Literature Review on Transparency in Executive Remuneration Disclosures and Their Determinants

There are ongoing debates globally regarding excessive executive compensation, the perceived weak link between pay and performance, and the widening inequality gap. The South African corporate governance code King IV’s Principle 14 addresses the need for fair, responsible, and transparent remuneration. At the same time, the newly enacted Companies Amendment Act No. 16 of 2024 in South Africa emphasizes transparency in compensation, shareholder voting, and responding to shareholder feedback. This study conducts a systematic literature review of 30 articles on the transparency of executive remuneration disclosures and their determinants by analyzing Scopus-indexed articles published between 2010 and 2023, selected through specific keyword searches. The findings suggest an increasing focus on research regarding the disclosure of executive compensation, predominantly conducted in the Global North and primarily framed through agency theory. Studies exploring the factors influencing executive remuneration and the relationship between pay and performance are prevalent, with mixed results generally indicating a positive connection. Firm size emerges as a key factor in transparency, and many studies employ binary scoring to evaluate whether executive compensation disclosure is present. This paper provides valuable insights for investors, analysts, and policymakers and adds to the current understanding of executive remuneration transparency.

Textual analysis of corporate sustainability reporting and corporate ESG scores

This paper examines the evolution of environmental, social and governance (ESG) reporting by analysing a ten-year corpus of annual reports from FTSE 350 companies. Using BERTopic, an advanced topic modelling technique, we identify and subsequently cluster the most important ESG topics, providing significant insights into the reporting landscape. Our findings show how regulatory changes, such as the Non-Financial Reporting Directive, and major events like Covid-19, influence ESG topic prominence. The disclosure of ESG information is primarily determined by regulatory requirements. This is particularly evident in the fact that companies only disclose the diversity on the board, which is mandatory, but not the diversity and inclusion at other levels of the reporting organisation. Furthermore, our study examines the correlation between ESG scores and topic proportions, showing that extensive disclosure on topics like climate risk and stakeholder engagement is positively associated with higher ESG scores, whereas topics like executive remuneration show negative correlations. Our research contributes to the literature by offering a novel methodological approach to ESG analysis and provides insights into the gaps between reporting standards and practices, relevant for standard-setting bodies and regulators.

Artificial intelligence and machine learning in corporate governance: A bibliometric analysis

BACKGROUND: The study deeply explores the thriving domains of artificial intelligence (AI) and machine learning (ML) in corporate governance. OBJECTIVE: The study aims to thoroughly examine the rapidly developing fields of artificial intelligence (AI) and machine learning (ML) in corporate governance. METHODS: After completing an in-depth analysis of 229 research studies published between 2008 and 2023 (using software tools such as RStudio, VOSviewer, and Excel),), the study reveals a notable increase in publications since 2022. Corporate social responsibility (CSR), environmental, social, and governance (ESG) issues, executive remuneration, and sustainability are all considered as important key focal areas of focus. Scholars in this field are notably at the forefront from Taiwan, the United States, and China. IMPLICATIONS: However, the study stress the necessity for further researches to estimate the efficacy of different AI and ML methodologies. This may guide evidence-based governance practices various industries and geographical areas.

Balancing Institutional, Social and Cognitive Factors: Human Resources Professionals’ Involvement in Executive Remuneration Governance

Balancing Institutional, Social and Cognitive Factors: Human Resources Professionals’ Involvement in Executive Remuneration Governance

The governing role of board gender diversity on conditional accounting conservatism and executive remuneration: performance-based versus equity-based remunerations

This study examines the governing role of gender diversity on the board of directors on conditional accounting conservatism and executive remuneration. Using proprietary data about women representation on the board of directors to investigate the impact on the choice between accounting methods and the structure of executives remuneration. A sample of listed firms on the London Stock Exchange from 2019 to 2022 is used. The results first document that firms exhibit a higher level of conditional accounting conservatism when women represent a larger fraction of the board. The analyses further establish different relationships between performance-based versus equity-based remunerations and conditional accounting conservatism. Last, the results show that women representation is related to pay out policy and its impact on conditional accounting conservatism. The findings also offer novel insights on the governing role and consequences of gender diversity of woman chairperson and/or woman CEO. Overall, contrary to notions of opportunistic behavior of executives, the results find that boards achieve more level of governance with more women representation.

ESG & Executive Remuneration in Europe

Executive remuneration has traditionally attracted the attention of scholars, regulators, and public opinion. In recent years, especially after epochal corporate scandals and financial crises, executive remuneration has polarized the political debate, leading to consequences for the way it was theorized, structured, and ultimately quantified within corporations. This article specifically examines the relationship between executive compensation and sustainability, with a focus on the influence of Environmental, Social, Governance (ESG) metrics in the context of European companies. The article provides a qualitative analysis of the historical debate on executive remuneration and considers the different theories informing corporate law. Furthermore, it offers a qualitative and empirical analysis of how executive compensation policies of the 300 largest companies by target capitalization in Europe – listed in the FTSE EuroFirst300 – take ESG parameters into account. Lastly, this article presents some policy considerations, particularly questioning whether executive remuneration is the right incentive for ESG compliance, and emphasizing the importance of a shift in corporate culture to effectively make corporate practices more sustainable.

Regulatory and investor demands to use ESG performance metrics in executive compensation: right instrument, wrong method

ABSTRACT The growing acknowledgment of the need to transition to sustainability in corporate governance has led to the scrutiny of and the infusion of non-financial environmental, social, and governance (ESG) goals into the traditional incentive-based executive remuneration frameworks. The swift adoption of ESG metrics in executive compensation by global corporations and their endorsement by influential institutional investors and various regulatory bodies highlight this trend. This article challenges the effectiveness and necessity of universally applying standard ESG metrics in compensation structures and aims to construct a framework for a more contextual and nuanced application of ESG-linked executive compensation. The analysis highlights the limitations of ESG objectives unrelated to shareholder value and demonstrates the limited circumstances where some company specific ESG objectives can drive rapid changes in targeted performance by drawing attention to these objectives. These findings question the evolving practice of a uniform integration of ESG metrics in compensation plan design of all companies and urge regulators, institutional investors, and corporate boards to adopt a more tailored, focused, and selective strategy in integrating ESG metrics into executive pay.

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.

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.

Regional criminal offense rates, labor mobility, and firms’ financial generosity

Considering macroeconomic data, this paper focuses on Chinese A-share listed firms from 2011 to 2020 and analyzes the relationship between regional criminal offense rates and corporate financial generosity. Specifically, this paper reveals that regional criminal offense rates improve corporate financial generosity by leading to labor outflows. Nevertheless, heterogeneity exists in the impact of the policy above. The executive team's legal and financial backgrounds and stock ownership can mitigate the impacts of regional crime rates on corporate financial generosity. However, executive remuneration incentives can worsen the issue.

Japan’s quest for a sustainable, virtuous circle of growth and innovation

ABSTRACT Large Japanese corporations which have accumulated substantial reserves are now under pressure to spend them, but on what, or on whom? Should they increase their (domestic) capital and R&D expenditure, which languished between 2000 and 2020; or invest more in their employees, whose wages have stagnated; or increase their shareholder returns, which have already surged; or raise executive remuneration closer to overseas counterparts? This article examines tensions in recent developments in Japan’s political economy, from Society 5.0 to Kishida’s ‘new form of capitalism’ and Keidanren’s ‘rebuilding the middle class’, from the perspective of these dilemmas.

Relationship between executive remuneration and performance of South African mining companies

Orientation: Managers are supposed to manage companies to maximise shareholders’ wealth. Instead, there are long-standing perceptions that managers are rent extractors who maximise their own wealth, implying a misalignment between executive remuneration and company performance.Research purpose: The purpose of this study was to determine the existence of a relationship between executive remuneration and the financial performance of South African-listed mining companies.Motivation for the study: Executive remuneration significantly increased over the past five decades relative to company financial performance. The mining sector was selected due to its susceptibility to external factors and shocks leading to volatility in the financial performance of mining companies.Research approach/design and method: This study was a quantitative archival study, using data from 2015 to 2021, by applying the hierarchical linear modelling technique at a 95% confidence level and a 5% significance level.Main findings: The study found a weak to strong relationship between executive remuneration and company financial performance. Furthermore, an analysis of executive remuneration revealed an increase in short-term incentive payments and a decrease in the fixed salary as a proportion of chief executive officer remuneration.Practical/managerial implications: Because the study found a strong link between executive remuneration and earnings-based financial performance metrics, governing bodies should ensure that financial performance metrics include cash flow-based financial metrics as company earnings are highly susceptible to management manipulation.Contribution/value-add: This study contributes to the existing literature on executive remuneration and will be useful to researchers, shareholders, boards of directors, remuneration committees and policymakers.

Analysis of the Connection Between Executive Remuneration and Corporate Fiscal Achievement

The interplay between top executive pays and fiscal achievements remains at the forefront of discourse in organizational leadership and governance frameworks. Understanding the connection between executive incentives and performance outcomes is crucial for effective corporate governance. This study dives deep into the tapestry of research that dissects these nuanced interactions. Executive compensation, a critical component of corporate governance, directly influences the behaviors and decision-making of top executives. Simultaneously, financial performance serves as a key indicator of a company's operational health and ability to generate value. According to the analysis, the relationship between both is complete and multifaceted. In some cases, higher levels of executive remuneration are positively correlated with improved financial performance, while negative correlations also exist. The relationship between the two is influenced by characteristics, e.g., corporate governance, industry characteristics, company performance, and individual executive characteristics. Numerous studies are currently available on the relationship between the two. However, it is important to acknowledge the limitations and shortcomings of the existing studies, which may impact the generalizability and applicability of the findings. In conclusion, the nexus between executive compensation and financial output is a complex and multidimensional issue that requires further in-depth research and study.

Reviewing executive remuneration decision-making and reporting: implications for theory and practice

PurposeThe purpose of this viewpoint is to comment on the implications of the Financial Reporting Council’s (FRC) Review and Consultation Documents expected to update regulation governing the determination/reporting of executive remuneration in UK stock market listed companies. Practical points from actors involved in executive remuneration decision-making/reporting are presented, set within the context of neo-institutional theory.Design/methodology/approachThis qualitative research systematically analyses UK Corporate Governance Codes, the FRC’s recent Review/Consultation and peer-reviewed published studies of executive pay determination based on in-depth interviews with non-executive directors, institutional investors, executive pay advisers and human resources (HR) professionals.FindingsFurther regulation, while providing coercive influence over executive remuneration decision-making, is likely to lead to only limited change in processes and reporting due to benchmarking, the make-up of Remco membership and shareholders' preferences. Mimetic and normative isomorphic forces work against coercive isomorphism leading to resistance to change as decision-makers strive to safeguard their social status/reputations.Practical implicationsReviewing executive remuneration package components and paying attention to company strategy, sustainability and values in pay determination are welcomed but recognised as difficult to achieve. Drawing upon a wider range of information sources/voices can assist in broadening the discussion. HR professionals can help widen stakeholder input to executive remuneration decision-making.Originality/valueThe authors’ viewpoint is grounded in peer-reviewed empirical data that draws directly upon the views/experiences of executive remuneration decision-makers to identify problems in adhering to FRC recommendations for change. The authors extend the meta-theoretical perspective of neo-institutional theory – specifically institutional isomorphism – as providing explanatory and predictive power to understand executive pay decision-making.

The Ethical Riddle of Executive Remuneration

Excessive executive remuneration causes public unease, debate, and very often legislative initiative. There could be actually good reasons for that: from times immemorial, betray the trust of a fellow and to take a decision as a judge in one’s own cause, have been considered despicable. Those ethical concerns are so “etched in legal nature” that the principles of sanctioning corporate mismanagement and conflicted decision-making have been considered parts of natural law. Such is not the case of the current (but not novel) concern with compensation “levels” irrespective of the merits of their earners, for which an ethical foundation is elusive. Keywords: Business Ethics; Ethics; Executive Remuneration; Fiduciary Duty; Economic Inequality.

ESG and Executive Remuneration in Europe

ESG and Executive Remuneration in Europe

O voto remoto pode mitigar os problemas de agência?

ABSTRACT Purpose: Board members are critical in resolving agency conflicts. How- ever, many are unable to perform their function due to their distance, as they are not present at board meetings. As of Instruction no. 561, the Brazilian Securities and Exchange Commission (CVM) regulated remote voting for Boards of Directors, allowing for greater attendance at meet- ings and, as a result, increased involvement. In this context, this research examines the effect of remote voting by Boards of Directors on execu- tive compensation and financial performance of publicly traded firms in Brazil. Originality/value: This research is innovative in the sense that it exam- ines the effect of the Board of Directors remote voting on the CEO com- pensation and financial performance of the firm, using an innovative methodology. Design/methodology/approach: We applied a quasi-experimental method (difference-in-differences) to assess the effects of a given group (treat- ment) before and after the event, significantly reducing endogeneity when considering an exogenous shock to the system. Findings: As a result, the estimation of the main model reveals statisti- cally significant differences between the effects of treatment and control on profitability and executive remuneration, indicating that remote vot- ing mitigated agency problems by generating a substitution effect for explicit incentives (as evidenced by the decrease in executive remunera- tion) and by providing greater accounting performance for companies.

ESG & Executive Remuneration in Europe

ESG & Executive Remuneration in Europe