Top Management Compensation Research Articles

The value of say on pay

We measure the impact of “say on pay” (SoP) – mandatory shareholder votes on top-management compensation – on the market value of voting rights. By exploiting the staggered introduction of SoP across 14 economies, we show that SoP does not automatically increase the value of shareholder voting rights. While stricter, binding SoP reforms increase voting values, looser advisory SoP laws decrease them. Firms that do not pay their CEOs excessively experience the largest decreases in voting values. Voting values also reflect a country’s level of investor protection, past dissent in SoP ballots, and dynamically adjust to changes in managerial compensation.

The Impact of the Covid-19 Pandemic on the Compensation of Top Managers of the CSR Organizations in the Field of Tourism and Hospitality in EU

Abstract This paper investigates the impact of the Covid-19 pandemic on the compensation of top managers and business performances of large socially responsible companies CSRin EU in tourism and hospitality industry. By applying the methods of correlation and regression analysis on a sample of 241 large organizations in the field of tourism and hospitality, we examined whether the Covid-19 pandemic caused a decrease in the total compensation of top managers and some of their parts (basic salary and variable part of compensation) and a change in their structure in a socially responsible company in the field of tourism and hospitality in the EU and how these changes in return affected the performance of the mentioned organizations measured by return on investment ROE. The results showed that there was a significant decrease in the total compensation of top managers in the observed companies during 2020 and 2021compared to 2019, as well as that there was an increase in the share of the basic salary (to the detriment of the variable part) in the total earning of top managers in the same period. The results also showed that changes in the compensation of top managers due to the pandemic had a significant impact on the performance of large socially responsible companies in the tourism and hospitality industry in EU that they lead.

Die Diskussion um die Vergütung des Spitzenmanagements in Deutschland – eine exemplarisch-qualitative Perspektive zur Exploration ihres Charakters

Top management compensation is a frequent topic of public debate in Germany. Although this debate often suggests that the level of compensation is socially relevant, research regarding the perspective of ‘society’ on top management compensation is scarce. However, to gain a deeper understanding of the nature and character of the debate, it seems to be important to analyze the patterns of justification with which high compensations are (not) rejected. Using the qualitative GABEK® method and based on online comment threads, this paper exemplarily analyzes both opinions and attitudes of citizens towards very high compensations and the underlying patterns of justification. The results point to the fact that the performance principle is central to thinking. However, due to the indeterminacy of the performance concept, this is dysfunctional regarding the constructiveness of the debate. In addition, the analyses reveal that top pay triggers broad debates that go beyond the discussion of individual top-level compensations.

What’s in a name? Leaders’ names, compensation, and firm performance

Can leaders’ names have an impact on their compensation and firm performance? We reason about how and why certain leaders’ names are related to higher financial compensation, yet unrelated to their ability to lead a company and thus firm performance. Based on a sample of 6132 CEOs working at large, publicly traded (S&P 1500) firms, we find that CEOs who have more “fluent” names—or names associated with feelings of cognitive ease (e.g., shorter length, more common)—obtain greater financial as well as non-financial perks, even though they are no more competent. Therefore, the study looks beyond the influence of sex- and race-typed names to help explain the observed mismatch between top management compensation and firm performance. We discuss the theoretical implication of this study for the cognitive bias and discrimination literature, and managerial implications for strategic human resource management.

Female CEOs and the compensation of other top managers.

We study the implications of having a female chief executive officer (CEO) for the compensation levels of other top managers of a firm. Extant theoretical perspectives, such as social identity theory, gendered notions of firm status, and loss of diversity benefits, among others, make competing predictions about the effect of having a female, as opposed to a male, CEO: (a) that only female top managers may earn more, (b) that both female and male top managers may earn less, and (c) that only female top managers may earn less. Using over 20 years of data on the top management teams (TMTs) of the largest 1,500 U.S. firms, we find that women (but not men) in top management earn significantly less with a female CEO than what they would have earned with a male CEO in a given year within a particular firm. We theorize that these results are consistent with the argument that a female top manager confers diversity benefits on her firm, which become redundant when there is a female CEO. Thus, the focal female top manager is paid less with a female CEO than what she would have earned with a male CEO. Our post-hoc test related to the effect of the percentage of female members on the TMT provides further empirical evidence for the diversity benefits perspective. This study contributes to research on TMTs, gender, and compensation and should inspire further work investigating the psychological mechanisms through which CEO gender influences TMT compensation. (PsycInfo Database Record (c) 2022 APA, all rights reserved).

Nagrađivanje vrhunskih menadžera u bankarskom sektoru tokom pandemije COVID-19

The paper analyzes the practice of the leading banks in Europe related to the compensation of top managers during the COVID - 19 pandemic and the determination of their relationship with the achieved performance of the banks. The paper aims to examine whether top managers' compensation was related to the bank's performance during the COVID - 19 pandemic as well as give recommendations related to rewarding top managers in crises, based on the good practice of leading European banks during the COVID - 19 pandemic. By applying correlation and regression analysis methods, to a sample of leading 50 banks in Europe and 123 top managers, we examined the relationship between the gross profit and compensation of top managers in 2020 and 2021. The results showed that the relationship between bank performance and top managers' compensation (base salary, bonus, and total compensation) was positive even during the COVID - 19 pandemic.

Supplemental Material for Female CEOs and the Compensation of Other Top Managers

Supplemental Material for Female CEOs and the Compensation of Other Top Managers

Top-management compensation and survival likelihood: the case of tourism and leisure firms in the US

This study examines the impact of top-management compensation on the survival likelihood of publicly listed firms in the tourism and leisure sector, and the mediating effect of profit distribution policy on that relationship. It uses a panel dataset of 55 US listed S&P1500 firms from 2006 to 2019. The analyses show that firms with higher top-management compensation packages exhibit a significantly lower risk of bankruptcy through higher levels of retained earnings. The findings support the agency and incentive alignment theories. They offer new and strong empirical evidence on the links between compensation, corporate governance and financial risks. The policies derived can be implemented to increase the probability of survival of tourism and leisure firms in the US.

PENGARUH KARAKTERISTIK EKSEKUTIF, KOMPENSASI MANAJERIAL PUNCAK, DAN PENGUNGKAPAN TATA KELOLA PERUSAHAAN TERHADAP TAX AVOIDANCE YANG TERDAFTAR DI BEI

The purpose of this study was to analyze the influence of executives’ characteristic, top management compensation and corporate governance of manufacturing company in Indonesian Stock Exchange before and after tax amnesty. The sample used for each year is 40 companies. The result show that executives’ characteristic has no effect on tax avoidance, top management compensation has a positive effect on tax avoidance and corporate governance has effect on tax avoidance.

Why Do Politicians Intervene in Accounting Regulation? The Role of Ideology and Special Interests

ABSTRACTPoliticians frequently intervene in the regulation of financial accounting. Evidence from the accounting literature shows that regulatory capture by special interests helps explain these interventions. However, many accounting rules have broad economic or social consequences, such as their effects on income distribution or private sector subsidies. The perception of these consequences varies with a politician's ideology. Therefore, if accounting rules produce those consequences, ideology plausibly spills over and explains a politician's stance on the technical accounting issue, beyond special interest pressure. We use two prominent U.S. political debates about fair value accounting and the expensing of employee stock options to disentangle the role of ideology from special interest pressure. In both debates, ideology explains politicians’ involvement at exactly those points when the debate focuses on the economic consequences of accounting regulation (i.e., bank bailouts and top management compensation). Once the debates focus on more technical issues, connections to special interests remain the dominant force.

Why Did Politicians Intervene in the Fair Value Debate? The Role of Ideology and Special Interests

Politicians frequently intervene in the regulation of financial accounting. Evidence from the accounting literature shows that regulatory capture by special interests helps explain these interventions. However, many accounting rules have broad economic or social consequences, such as their effects on income distribution or private-sector subsidies. The perception of these consequences varies with a politician’s ideology. Therefore, if accounting rules produce those consequences, ideology plausibly spills over and explains a politician’s stance on the technical accounting issue, beyond special interest pressure. We use two prominent U.S. political debates about fair value accounting and the expensing of employee stock options to disentangle the role of ideology from special interest pressure. In both debates, ideology explains politicians’ involvement at exactly those points when the debate focuses on the economic consequences of accounting regulation (i.e., bank bailouts and top-management compensation). Once the debates focus on more technical issues, connections to special interests remain the most dominant force.

Firm Performance, Top Management Compensation, and Risk Preference: A Story of Indonesian Firms

The issue of conflict of interests between shareholders and managers is interesting and widely examined. Compensation is often used to align the interests of managers with those of shareholders. This study aims, first, to show an empirical evidence of the relationship between company's performance and the manager’s compensation. In addition, this study also examines the impact of risk preference on that relationship. The sample for this study of manufacturing companies listed in the Indonesian Stock Exchange (BEI) for the period of 2008 to 2013. Data was obtained from annual reports, financial statements, and BvD Osiris. Regression analysis was employed to test the hypotheses. The results show that compensation is related more to accounting performance than to market performance. The compensation also had an impact on the future accounting performance, but not on future market performance. However, contrary to the expectation, risk preference does not strengthen the relationship between future compensation and future performance. After splitting the sample into three categories, the compensation can motivate managers to increase the accounting performance only for companies with better performance.

The Value of Say on Pay

We measure the impact of say on (SoP) - mandatory shareholder votes on top management compensation - on the market value of voting rights. By exploiting the staggered introduction of SoP across 14 economies, we show that SoP does not automatically increase the value of shareholder voting rights. While stricter binding SoP reforms increase voting values, looser advisory SoP laws decrease them. Firms that do not pay their CEOs excessively experience the largest decreases in voting values. Voting values also reflect a country's level of investor protection, past dissent in SoP ballots, and dynamically adjust to changes in managerial compensation.

Top Management Compensation and Performance in Russian Companies

Konstantin V. Bogatyrev - Moscow State University. M.V. Lomonosov Moscow State University. 
 E-mail: konstantin.bogatyrev@yahoo.com
 The top management remuneration policy of public companies counts among the key decisions that shape the financial architecture and the incentive structure for hired executives in such companies. The factors determining the pay of top managers have been a debated topic both for academia and for the public at large for decades. For Russian companies, however, this question has remained largely unstudied.This paper is intended to rectify this deficiency and contributes to the research on top management remuneration policy and the way in which it relates to performance in Russian corporations. Following an overview of the evidence presented in previous studies focusing on other markets, the paper presents a new empirical study of pay and performance using self-collected data on 93 Russian public companies for the five-year period between 2009 and 2013. The data on key management personnel compensation has been collected from the companies' official reports, including annual or financial reports and other stock exchange reports. The data on other financial indicators has been procured from the Bloomberg Professional® database.Using fixed effect models for econometric analysis, we find evidence of a positive relationship between compensation and business performance in Russia, although this is not evident for every performance indicator. Indeed, both short-term and long-term forms of compensation as well as their sum show a positive relationship to return on assets (ROA), and the respective sensitivities of pay to performance are not negligible. However, institutional or state ownership can weaken this sensitivity. The relationship is only evident in companies with no state participation. Whereas 33 state-owned companies in the sample exhibit no significant relationship of top management compensation to corporate performance, the accounting profits and ROA of the remaining 60 (private) companies serve as significant determinants of remuneration levels.

Top management remuneration in a post-transition economy: Does company ownership make a difference?

Executive remuneration is considered among most important mechanisms to align interests of managers and company owners. This paper examines the role of company ownership as a determinant of top management compensation. The aim of the research was to determine the impact of ownership origin, domestic or foreign, on top management remuneration practices in a post-transition economy country. The research is based on a survey of top management remuneration practices among 60 medium and large sized Croatian companies. Research results indicate that foreign owned companies provide more annual bonuses, long-term compensation and additional benefits to higher percentages of top managers than domestically owned companies. Companies with domestic owners provide annual bonuses at higher ratios of base pay compared to foreign owned companies and position managerial pay at higher levels relative to comparative firms in the sector with foreign owners. Top managers, investors and firm owners should be aware that in post-transition economies compensation practices greatly differ between domestic and foreign owned companies.

Mixed Ownership Structures and Firm Performance in China Listed Firms

China has achieved impressive economic growth since market reforms. The design of appropriate compensation structures is imperative so as to incentivize top managers, but little research has been done to examine the top management compensation structure in China. This study investigates how listed firms in China relate executive compensation to their firm performance and how such relationships are influenced by firm ownership structure. The results provide evidence showing strong link between compensation and performance varies across firms with different ownership structure. Private ownership enhances the link between firm performance and top CEOs compensation, while government ownership weakens executive pay-performance relation and thus makes the firms less effective in solving the agency problem between shareholders and management. It suggests enterprise reform in China will need to be supplemented by change in ownership structure in order to ensure fully success by transforming its State Owned Enterprises (SOEs) to corporations in the direction of converting state shares to public shares.

Directors’ Compensation and Insurance Firms’ Performance in Nigeria

Compensation is a complex and controversial subject. Researchers, academicians and consultants have devoted much time and efforts to understand the innumerable factors that underlie top management compensation. Of more importance to this study is how compensation imparts on firms’ performance. For some time now, executive compensation has been a matter of concern to corporate policy makers. Studies have shown that compensation is one of the most important strategies in human resource management; as it influences the productivity and growth of organizations. There is also a public outcry that insurance companies in Nigeria do not settle claims promptly; and in most cases only with the intervention of the regulatory bodies. There are many published issues on compensation that focus on organizational differences; there is little on whether compensation has any significant linkage with performance. Besides, improvement of corporate governance standards has been at the forefront of international debate in recent times. Compensation of directors and executives is one of the key issues in this debate. This study aimed at finding out if there is any relationship between remuneration and incentive systems on Nigerian insurance firms’ productivity. The net claims paid to contributors depict a measure of productivity as perceived by the insured, while the returns on assets depict productivity from the shareholders perspective. The two represent the dependent variable for study.

Regulatory Compensation Limits and Business Performance Evidence from the National Football League

Executives’ compensation has been on the forefront of the public and political debate since the recent financial crisis. One of the measures publicly discussed is a general upper boundary to top management compensation packages (“salary cap”, “maximum wage”). While such measures are novelties to the corporate world, the North American major sports leagues have been using maximum compensation regulations for decades. This paper exploits the 23-year experience with salary cap regulations from the National Football League (NFL). The results show a significant negative relation between the success of NFL teams and the amount of the net (after-tax) salary cap represented by the personal income tax rate of the teams’ home states. A team from California (highest average tax rate) wins 2.256 games less per year and has an 11% reduced probability of making the playoffs than a team located in a no-tax state such as Florida or Texas. The paper contributes to and informs the ongoing public and political debate regarding the regulation of executive compensation, and its effects on the performance of the regulated entities.

Organizational Capital: The Most Important Unsettling Issue in Tax

“Organizational Capital” argues that a uniform income tax would not do material damage, but that our income tax does serious distortion by reducing pretax returns for different companies by very divergent amounts. If an investment has zero adjusted basis, then tax does not reduce the pretax rate of return. To reduce pretax rate of return by the statutory tax rate, the adjusted basis of the investment must equal the present market value of the investment (using the internal rate of return as the discount rate). There is also a rule of proration under which a tax basis of half of present value implies that pretax returns are reduced by half of the statutory tax rate. This creates an uneven playing field with relative advantages and punishments unrelated to the merits of the underlying investments. With publicly traded corporations, we can rely on the smart market to determine the fair market value of a corporation’s assets There would be incremental improvements by capitalizing the costs of advertising, research and development and top management compensation, and amortizing the costs over some arbitrary period. But to reach a truly level playing field, it is also necessary to capitalize the organizational advantages of big business. From its inception in the nineteenth century, big business was able to marry mass production to mass distribution under professional management and immediately dominate each industry upon entry. Publicly traded companies can accumulation capital for the largest, most profitable projects. The importance of ending tax distortions of intangibles fully justifies moving to a mark-to-market system in which corporations are taxed until the basis for their assets equals the market capitalization of their stock and debt.

Is top-management remuneration influenced by board characteristics?

Purpose– The purpose of this article is to examine if certain board characteristics have an impact on the total remuneration of top management and the ratio of stock-based remuneration to total top-management remuneration.Design/methodology/approach– The study draws on data from the largest public Canadian companies, the constituents of the TSX/60 index. The study controls for firm size and profitability.Findings– The authors concludes that total remuneration of top management is directly linked to board-member total remuneration and the board average number of director-tenure years. The study also shows that the ratio of stock-based to total top-management remuneration is positively affected by the percentage of independent directors, total remuneration of board directors, the ratio of stock-based remuneration of directors to their total remuneration and the average number of tenure years of the board of directors.Practical implications– If regulators are determined to curb the excesses in top-management remuneration by means of promoting boards with certain characteristics, they should implement measures facilitating the control of directors’ remuneration and tenure, to discourage cronyistic behavior. Good corporate governance requires that the board act as a counterbalance to top management, ensuring that a substantial percentage of top-executive total compensation is variable, and not fixed. According to our findings, the boards that are the most likely to hold managerial avoidance of variable pay in check are those favoring director independence, variable director remuneration and longer director tenures.Social implications– The present article examines specifically the latter aspect, namely, the role of board characteristics (independence, size, compensation, board director ownership and tenure, etc.) in the determination of top-management compensation. This relationship is important because it allows us to further the analysis of corporate governance. If the above-mentioned traits of boards have a meaningful relationship with the compensation of the top management, one might conclude that certain practices in the composition of boards could influence good corporate governance practices. This is relevant for regulatory agencies, for investors and for corporations.Originality/value– The article adds to the extant literature in a number of ways. Firstly, it considers the role of the traits of the board in the determination of the compensation of the top-management teams, and not only of the chief executive officer, as is the focus of previous literature. Secondly, the article focuses on the power interplay between boards and managers, and, more particularly, on the ability of boards to be an effective mechanism of corporate governance. Finally, the article examines the potential impact of board traits in the determination of top-management compensation in the context of Canadian firms, a subject that has received less attention from academic research, which has mostly concentrated on analyzing the issue in the US context.