Executive Remuneration Research Articles

Sensitivity of executive remuneration to social and traditional media exposure in China

Sensitivity of executive remuneration to social and traditional media exposure in China

Sensitivity of executive remuneration to social and traditional media exposure in China

Sensitivity of executive remuneration to social and traditional media exposure in China

THE DETERMINANTS OF MALUS ON REGIONAL DEVELOPMENT BANK IN INDONESIA

Abstract— This study is based on the Indonesian Financial Service Authority since 2015 regulates that banks must have a policy to defer, or to clawback, or combination of both the variable compensation paid to bank’s executive. Since the Indonesian Financial Authority allows banks to choose their compensation scheme, this study is to investigate the factors that influence the choice of the policy. Our study is among few studies that investigate this area because the regulation was enacted in 2017. Data are collected from Regional Development Bank in Indonesia that report their compensation policy since 2017 to 2019. We test financial and nonfinancial factors that may determine the choice of compensation policy. Banks with lower net interest margin tend not to choose malus. The similar conclusion is also given by the variable board of commissioner’s tenure. However, commissioner’s remuneration suggests a positive relationship with the propensity to choose malus other than other type of compensation policies. We find that net interest margin, board of commissioners tenure, and remuneration of executives are related to choice of clawback or malus. Future researchers may focus on the effect of corporate governance related to local governments-owned banks and remuneration provisions.
 Keywords: Clawback; Compensation; Corporate Governance; Holdback; Malus

The role of inside debt in banks’ M&A choices: wealth expropriation or conflict resolution?

PurposeThis study investigates the impact of bank CEOs’ inside debt on shareholder benefits in the context of bank mergers and acquisitions (M&A) before the 2008–2009 financial crisis.Design/methodology/approachEmploying an event-study methodology, this analysis delves into market reactions to bank M&A announcements during 2006–2007, encompassing 105 M&As by 79 public commercial banks. This era witnessed heightened risk-taking behavior on the verge of the financial crisis. We explore the relation between relative inside debt and market abnormal returns at M&A announcements and the association between relative inside debt and cash payment preferences in M&As.FindingsEvidence suggests that M&A announcements from banks where acquiring CEOs hold a substantial inside debt experience favorable stock market reaction, particularly for smaller banks. Additionally, banks with elevated CEO inside debt tend to favor cash as a payment mode for M&As.Research limitations/implicationsOne limitation of this study is the short period of data availability. The data used in this study covers only 2006 and 2007, the periods marked by notable risk-taking activities on the verge of the financial crisis. Although this period is perfectly suitable for our investigation, given the prevalence of conflicts between equity and debt holders, it is essential to acknowledge that our findings may not capture changes or trends over time. Nevertheless, the results offer valuable insights into the factors that influence the behavior of the studied population. Future research could employ a longitudinal design to address this limitation and gain a more comprehensive understanding of the dynamics over extended periods.Practical implicationsOur study has significant implications for businesses and policymakers as it provides insights into the factors contributing to financial crises and how compensation mechanisms can be used to moderate bank risk-taking. We propose that CEO inside debt compensation presents a plausible mechanism that boards of directors can incorporate into bank executive compensation contracts. By doing so, they can promote value-enhancing investments and moderate excessive risk-taking, thereby safeguarding the financial stability of individual banks and overall financial system.Originality/valueOur study sheds light on the beneficial role of bank CEO inside debt for shareholders, contributing empirical backing to the conflict resolution viewpoint in the discourse on wealth appropriation. From a regulatory stance, our findings advocate for the inclusion of bank CEO inside debt in executive remuneration agreements. Such a strategy can empower boards of directors to mitigate undue risk and enhance shareholder value in M&As, safeguarding both individual bank and broader financial system stability.

The Nexus between Executive Compensation and Firm Performance: Does Governance and Inequality Matter?

Purpose: The main aim of this study is to empirically investigate the relationship between executive compensation, inequality, and corporate governance, thus filling a gap in extant literature.
 Design/methodology/approach: The methodology used calculated the salary Gini (s-Gini) and governance indices (G-index) for companies in the sample and these were used as proxies for inequality and corporate governance respectively. The dataset is panel in nature. It comprises 46 conveniently selected largest JSE listed companies (by market capitalisation). A 2-step system GMM was used to determine if s-Gini and G-index were channels through which executive compensation could influence company performance. While considering a dynamic specifi-cation, the GMM estimator addressed possible endogeneity bias. GMM estimation method addressed potential over or underestimation of the relationship between company performance and executive compensation because it was considered more efficient on shorter panels. GMM analysis on companies listed on the JSE Top40 index was from 2008 to 2020. Overall, the methodology and analysis employed provide valuable insights into the complexities between executive compensation, inequality, corporate governance, and company performance, shedding light on important factors that can influence company's performance.
 Findings: Results indicated that as executive compensation improved, company performance deteriorated. Furthermore, varied impact of inequality on performance measures were recorded. The observation was that inequality influenced performance in diverse ways. This accentuated the convoluted nature of this relationship. The study also established that both inequality and corporate governance are channels through which executive remuneration affects performance. Additionally, a positive nexus between governance and net profit margin was discovered.
 Research limitations/implications: The results imply that: higher executive pay does not always yield better com-pany performance; the effects of executive pay on performance are mediated by the level of inequality within the company and the quality of corporate governance practices; good corporate governance practices can enhance financial performance. It is recommended that companies should prioritise espousal of sound corporate governance practices because they have positive influence on performance. Moreover, diligent attention must be given to how executive compensation is configured. Poorly designed compensation packages erode company value. Conversely, properly structured ones may enhance performance and successively improve company value. This study is focused solely on the Top40 largest listed companies in South Africa. The findings may not be generalisable to all listed entities, as there could be variations in the relationship between executive compensation, inequality, and corporate governance across companies of different sizes. By concentrating on the largest entities, the study may gloss over nuances that exist in smaller companies. However, it is important to state that the insights gained from this research are still valuable and can provide useful guidance to policymakers, shareholders, and other stakeholders in under-standing the interaction of the variables examined within the context of larger firms. Future research should consider expanding the sample to include a broader range of listed entities to obtain a more comprehensive understanding of these relationships across the entire corporate landscape.
 Originality/value: This study contributes to research gap highlighted by Core et al.

An Overview of the Use of Clawback as a Governance Mechanism on Executive Remuneration in South Africa

"The use of malus and clawback provisions has increased in recent years due to the demand for tighter controls on incentive-based compensation. The alignment between executive pay and individual performance creates a culture of responsible decision-making and accountability within an organisation. This paper seeks to evaluate the current state of governance legislation on the clawback of remuneration in the South African context. A systematic literature review was conducted to provide descriptive insight on the technical and procedural approach applied to the clawback of remuneration. These findings were then compared to other countries so that similarities, differences, and areas of further research could be identified. Through detailed content analysis, it was found that the South African governance regime lags behind its international counterparts regarding remuneration clawback. Due to the absence of relevant statutory guidelines, discretion is frequently applied, leading to inconsistent treatment of clawback amongst listed companies. The use of clawback as a risk-mitigation mechanism is also relatively new in South Africa and comparative studies provide useful insight on the technicalities and administration processes applied abroad. The lessons learnt and strategies applied internationally serve as a benchmark for the development of clawback legislation in South Africa. Keywords: accountability, clawback, corporate governance, executive remuneration JEL Classification: G35, G39"

Quantum accountability: when does enough become too much in top pay decision-making?

PurposeThe purpose of this paper is to examine how and why individuals involved in executive remuneration (top pay) decision-making consider quantum as being appropriate rather than excessive, theorised under the rubric of accountability.Design/methodology/approachIn-depth interviews were conducted with non-executive directors (NEDs) serving on remuneration committees (Remcos), institutional investors, their external advisers and internal HR reward experts. Transcripts were analysed using NVivo and the Gioia qualitative methodology.FindingsDefining, measuring and applying performance conditionality in the determination of top pay quantum such that it aligns with company strategy/culture and values, as well as individual recipient motivations, is difficult. While creative approaches to setting top pay so as to attract, retain and motivate key personnel are welcomed, these risk Remco members' personal/organisational reputations. Members recognise disconnection between top pay quantum and general pay levels and how the media highlights social inequality leading to public distrust. They believe they can contribute to more socially acceptable quantum by applying their own values in top pay decision-making.Originality/valueSanctions-based, trust-based and selection/peer networks/felt-based accountability theory is used to explain decision-makers’ actions when determining top pay quantum. This paper extends felt accountability theory to encompass public/societal accountability in the context of the appropriateness of top pay quantum decisions.

Boardroom backscratching and stock price crash risk

AbstractWe empirically capture boardroom backscratching, or cronyism, as when a firm's Chief Executive Officer (CEO) and directors concurrently receive excessive remuneration. We argue that boardroom backscratching can inhibit a board's constructive criticism and monitoring, resulting in a greater likelihood of bad news hoarding. Using 14,104 US firm‐year observations spanning 1999–2020, we document a significant positive relationship between boardroom backscratching and stock price crash risk. In additional analyses, we show that boardroom backscratching firms produce less readable annual reports and engage in greater upward real earnings management as channels for concealing bad news. We also find that external monitoring mechanisms weaken the positive association between boardroom backscratching and stock price crash risk. Our main findings withstand several endogeneity tests including propensity score matching, entropy balancing, difference‐in‐differences analysis using firms’ commencement of boardroom backscratching and CEO turnover event analysis. Our study offers insights to securities regulators and policymakers to revisit the notion of board independence, develop relevant market oversight and revise director and executive remuneration disclosure requirements so as to mitigate adverse stock market performance associated with boardroom backscratching.

Executive compensation controls and corporate cash holdings.

As a crucial component of internal corporate governance, remuneration controls possess the potential to influence the cash holdings of firms. However, identifying the causal relationship between these controls and such holdings presents a considerable challenge. To address this research gap, this paper leverages the implementation of China's Guidance on Further Regulating the Remuneration Management of Heads of Central Enterprises as a quasi-natural experiment to investigate the relationship between executive remuneration controls and firms' cash holdings, utilizing a double-difference approach. Based on an analysis of a sample of listed companies from 2007-2012, the results indicate that firms subject to regulated executive compensation exhibit lower cash holdings. To ensure the robustness of these findings, various statistical techniques such as parallel trend tests, variable replacement, propensity score matching, and placebo tests were employed. Additionally, a mechanism test was conducted, whereby the mediating effect of executive compensation controls on firms' cash holdings was examined, revealing a reduction in internal agency costs. Finally, the analysis of heterogeneity demonstrated that the impact of executive compensation controls on firms' cash holdings was more pronounced in companies with high-quality internal controls, stronger management oversight, and lower information asymmetry.

A Tale of Two Theories–Critically Synthesized to Enhance Understanding of Executive Remuneration

This concept paper synthesizes two theories of executive remuneration. Soundly motivated, the two manifestations of agency theory of equity examine the market for managerial labor. The first theory models two families of determinants of Chief Executive Officer remuneration: economic factors and wealth expropriation. The second theory models equilibrium corporate governance quality by treating the Chief Executive Officer as a rational maximizer of her own wealth utility. This theory complements the first by facilitating consideration of the contextual role played by Chief Executive Officer greed, in undermining equilibrium pricing of economic factors and the efficacy of corporate governance mechanisms.

Communist party organization and abnormal compensation of enterprise executives

This paper examines the impact of the construction of the Communist Party Organization on the abnormal remuneration of corporate executives by selecting data on listed companies in China from 2008 to 2020 as the subject of the study. The empirical results show that the communist party organization construction has a significant inhibitory effect on the abnormal compensation of corporate executives, and the inhibitory effect is more significant in the case of low independent directors' diligence, non-standard audit opinions, low institutional investors' shareholding ratio and high-tech enterprises.

The impacts of firm-level and country-level variables on Environmental, social and corporate governance greenwashing

Abstract
 While ESG investments have increased in the last 10 years, stakeholders are curious about the correctness of the ESG claims of companies. Greenwashing (GW) is a conscious and selective information disclosure of firms to create a positive image in the eyes of the stakeholders. It limits the integration of ESG data into investments as the stakeholders lose their trust in that declarations. Unaudited sustainability reports, lack of standardization in disclosure rules of ESG data, and the absence of a global governance body to ensure the accuracy of reported ESG information increase the risk of GW behaviors. 
 Purpose: The motivation of this study is to help out stakeholders to determine which company factors (size, profitability, board structure, governance model) and country factors (corruption, unemployment, wealth of the society) impact the ESG greenwashing behaviors within STOXX 600. 
 Method: We implemented a panel regression model. The dataset covers STOXX 600 firms from 2009-2020.
 Findings: The results show that each ESG GW dimension is impacted by a different company and country variables. An increase in CSR committee and embedding sustainable factors into the Executive remuneration are two main factors that decrease all three dimensions of GW behaviors. Company governance and financial factors have more impact on the GW compared to the country factors.
 Originality: According to our knowledge, this is the first research that evaluates each greenwashing dimension at the firm and country levels.

Co-integrating relation between pay, board governance and performance: evidence from Indian banking

Purpose The purpose of the paper is to explore the long-run impact of board governance and bank performance on executive remuneration. More specifically, the study addresses two objectives. First, the authors investigate the long-run relationship between pay and performance hold for the Indian banking industry. Second, the authors explore the moderating role of the board in explaining the relationship between executive pay and performance. Design/methodology/approach The study uses multivariate panel co-integration approaches, i.e. fully modified and dynamic ordinary least square, to explain the co-integrating relationship between executive pay, governance and performance of Indian banks. The analysis is conducted for the period from 2005 to 2018. Findings The results of co-integration tests reveal a long-run relationship between executive pay, board governance and bank performance. The long-run estimates produce evidence in favour of the dynamic agency theory, suggesting that the implications of asymmetric information can be mitigated by associating the current executive pay with the bank performance in the previous periods. The finding of this study reveals that improvements in the board quality serve as a monitoring tool to constrain excessive pay and moderate the executives’ pay. Furthermore, the interaction of performance and board governance negatively impacts pay, supporting a substitution approach. It implies that setting optimal pay packages for executives necessitates enhanced and efficient board governance practices. Practical implications The study recommends significant policy implications for regulators and the board of directors that executive pay significantly responds to the bank’s performance and good board governance practices in the long run. Originality/value This paper provides novel evidence of long-run pay-performance-governance relation using a panel co-integration approach.

Executive Remuneration of Company Directors under EU Law and Turkish Law

Executive Remuneration of Company Directors under EU Law and Turkish Law

The Effect of Executive Compensation on the Performance of Listed State-Owned Highway Companies

Listed state-owned highway companies face problems such as low operational efficiency, a fixed operation period, and a limited scale of road assets. This paper presents the current situation of listed state-owned highway companies and analyses the mechanism of executive compensation and cooperate governance based on principal-agent theory, management power theory, and Maslow’s hierarchy of needs theory. The research constructs the index assessment system, selects the data of 20 listed state-owned highway companies from 2012 to 2021 as samples, and applies the principal component analysis (PCA) to measure the comprehensive performance of listed state-owned highway companies. Using a fixed-effects panel model, the impact of executive remuneration on corporate performance is examined along three dimensions: executive monetary compensation, executive pay gap, and executive on-the-job consumption. The research proposes recommendations to address the problems of executive compensation system, with a view to improving corporate performance in listed state-owned highway companies.

Sustainability Targets in Executive Remuneration Contracts and Corporate Sustainability Performance in the United Kingdom and European Union

Sustainability Targets in Executive Remuneration Contracts and Corporate Sustainability Performance in the United Kingdom and European Union

Remuneration committees, CEO compensation, skills and retention

PurposeThe purpose of this study is threefold: to examine the impact of a remuneration committee (RC) on the level of chief executive officer (CEO) remuneration; whether firms with a RC, pay a premium to CEOs with different skill sets (general or specific); and whether a pay premium mitigates the potential for CEO turnover.Design/methodology/approachThis study uses a sample of 5,305 firm-year observations on a data set drawn from companies listed on the Australian Securities Exchange for the period 2007 to 2014. The authors use ordinary least squares as well as logit regression techniques to test the formulated hypotheses. Difference in difference and propensity score matching techniques were undertaken to address the endogeneity concerns.FindingsThe findings show that firms with a RC pay a higher total remuneration to CEOs compared to firms without a RC. Furthermore, firms with a RC, value and reward CEOs with general skills by paying a premium not offered to CEOs with industry-specific skills. Paying a premium, in turn, mitigates CEO turnover by strengthening the CEO’s commitment to the organisation.Originality/valueThe study helps us to understand the critical role played by the RC in the remuneration of CEOs. The findings show that RCs act as an effective governance mechanism to deal with issues of executive remuneration and to retain skilled CEOs. Additionally, CEOs who acquire and develop general managerial skills will be able to extract higher pay from improved bargaining power. The findings will be of relevance to shareholders, regulators and company management who have an interest in executive pay and performance.

Does sustainability in executive remuneration matter? The moderating effect of Italian firms’ corporate governance characteristics

PurposeThis paper aims to verify whether the integration of sustainability in executive compensation positively affects firms’ non-financial performance and whether corporate governance characteristics enhance the relationship between sustainability compensation and firms’ non-financial performance and to expand the domain of the impact of sustainability on non-financial performance.Design/methodology/approachThis analysis is based on a sample of companies listed on the Milan Italian Stock Exchange from the Financial Times Milan Stock Exchange Index over the 2016–2020 period. Regression analysis was used by using data retrieved from the Refinitiv Eikon database and the sample firms’ remuneration reports.FindingsThe findings of this paper show that embedding sustainability in executive compensation positively affects firms’ non-financial performance. The results of this paper also reveal that specific corporate governance features can improve the impact of sustainability on non-financial performance.Research limitations/implicationsThis analysis is limited to Italian firms included in the Financial Times Milan Stock Exchange Index; however, the findings are highly significant.Practical implicationsThe findings provide regulators with useful insights for considering the integration of sustainability goals into executive remuneration. Another implication is that policymakers should require – at least – listed firms to fulfil specific corporate governance structural requirements. Finally, the findings can provide investors and financial analysts with a greater awareness of the role played by executive remuneration in the long-term value-creation process.Originality/valueThis paper contributes to addressing the relationship among sustainability, remuneration and non-financial disclosure, drawing on the stakeholder–agency theoretical framework and focusing on Italian firms. This issue has received limited attention with controversial results in the literature.

Political Connections and Executive Remuneration in Indonesia: Does the Role of Institutional Ownership Matters?

Purpose : The study aims to examine the role of institutional ownership in moderating the effect of political connections on executive remuneration in Indonesia.
 Method : The study uses a quantitative method approach. The population of this study was all companies listed on the Indonesia Stock Exchange from 2015 to 2020. Research data sourced from www.idx.co.id, and OSIRIS. Using the purposive sampling method, 2,275 observations firms were determined. Hypothesis testing was carried out using multiple linear regression for panel data.
 Findings : The results revealed that only the main effects influenced executive remuneration. Institutional ownership, political connections positively affected executive remuneration. In addition, the interaction effect of institutional ownership was not shown to moderate the relationship between political connection and executive remuneration. These results suggest that political connection and institutional ownership are necessary to determine executive compensation. Therefore, stakeholders must be aware of the political connection misuse possibility in determining the executive compensation package. On the other hand, institutional ownership may be related to incentive-based pay, which needs to be explored further.
 Novelty : The novelty of this study is a new study that examines the phenomenon of political connections to executive remuneration in Indonesia and includes the role of governance-Institutional ownership as a moderating variable. In addition, this study uses the unbalance panel method, which examines all sectors of companies listed on the Indonesian stock exchange and observed for 6 periods or 2015 - 2020.
 
 Keywords: Corporate Governance; Institutional Ownership; Political Connection; Remuneration

Remuneration of Executive Directors of State-owned Company: Mhlwana and another v Denel SOC Ltd [2021] ZAGPPHC 199 (19 March 2021)- in Perspective

Remuneration of Executive Directors of State-owned Company: Mhlwana and another v Denel SOC Ltd [2021] ZAGPPHC 199 (19 March 2021)- in Perspective