Download or read book Pay Without Performance written by Lucian A. Bebchuk and published by Harvard University Press. This book was released on 2004 with total page 308 pages. Available in PDF, EPUB and Kindle. Book excerpt: The company is under-performing, its share price is trailing, and the CEO gets...a multi-million-dollar raise. This story is familiar, for good reason: as this book clearly demonstrates, structural flaws in corporate governance have produced widespread distortions in executive pay. Pay without Performance presents a disconcerting portrait of managers' influence over their own pay--and of a governance system that must fundamentally change if firms are to be managed in the interest of shareholders. Lucian Bebchuk and Jesse Fried demonstrate that corporate boards have persistently failed to negotiate at arm's length with the executives they are meant to oversee. They give a richly detailed account of how pay practices--from option plans to retirement benefits--have decoupled compensation from performance and have camouflaged both the amount and performance-insensitivity of pay. Executives' unwonted influence over their compensation has hurt shareholders by increasing pay levels and, even more importantly, by leading to practices that dilute and distort managers' incentives. This book identifies basic problems with our current reliance on boards as guardians of shareholder interests. And the solution, the authors argue, is not merely to make these boards more independent of executives as recent reforms attempt to do. Rather, boards should also be made more dependent on shareholders by eliminating the arrangements that entrench directors and insulate them from their shareholders. A powerful critique of executive compensation and corporate governance, Pay without Performance points the way to restoring corporate integrity and improving corporate performance.

Download or read book Executive Pay performance Sensitivity and Its Consequences written by Trairong Swatdikun and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Executive compensation has been extensively studied in market orientation economy; consequently the conflict of interest between the Principal and the Agent is clearly defined in a widely-held firm. A concentration-owned firm that dominates Asian capital markets have not such a conflict between the shareholders and the managers, but groups of shareholders in conflict are a concern. Since only one group of owner dominates the decision, executive compensation is hardly believed to be well established. Using a unique Thai listed company's data between 2002 and 2008 as a sample, this study presents empirical evidence on Agency theory outside the Anglo-Saxon setting. Ordinary least square method, fixed effects, two-stages least squares, generalised method of moments are deployed to test the hypotheses. In addition to all executive receives base pay, it reveals that bonus is the most common incentive while fewer than 10% of listed companies provide stock option to their executive. The econometric results reveal positive pay-performance sensitivity in Thai listed companies. However, ownership structure does play a vital role in the sensitivity. In a widely-held firm, the positive influence of firm performance on executive compensation is found. The evidence supports that widely-held firms have well established their executive compensation package. In the foreign-owned firm, the positive sensitivity reveals that foreign ownership actively take part in the compensation policy to serve the firm interests. Furthermore; Managerial power suggests that in the imbalance of power between groups of shareholder, there is no pay-performance sensitivity in neither family-owned nor corporate-owned firms. Further evidences indicate that operation cash flow and stock return are the consequence of executive bonus pay.

Download or read book CEO Pay and Firm Performance written by Paul L. Joskow and published by . This book was released on 1994 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study explores the dynamic structure of the pay-for- performance relationship in CEO compensation and quantifies the effect of introducing a more complex model of firm financial performance on the estimated performance sensitivity of executive pay. The results suggest that current compensation responds to past performance outcomes, but that the effect decays considerably within two years. This contrasts sharply with models of infinitely persistent performance effects implicitly assumed in much of the empirical compensation literature. We find that both accounting and market performance measures influence compensation and that the salary and bonus component of pay as well as total compensation have become more sensitive to firm financial performance over the past two decades. There is no evidence that boards fail to penalize CEOs for poor financial performance or reward them disproportionately well for good performance. Finally, the data suggest that boards may discount extreme performance outcomes -both high and low - relative to performance that lies within some `normal' band in setting compensation.

Download or read book The Handbook of the Economics of Corporate Governance written by Benjamin Hermalin and published by Elsevier. This book was released on 2017-09-18 with total page 762 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Handbook of the Economics of Corporate Governance, Volume One, covers all issues important to economists. It is organized around fundamental principles, whereas multidisciplinary books on corporate governance often concentrate on specific topics. Specific topics include Relevant Theory and Methods, Organizational Economic Models as They Pertain to Governance, Managerial Career Concerns, Assessment & Monitoring, and Signal Jamming, The Institutions and Practice of Governance, The Law and Economics of Governance, Takeovers, Buyouts, and the Market for Control, Executive Compensation, Dominant Shareholders, and more. Providing excellent overviews and summaries of extant research, this book presents advanced students in graduate programs with details and perspectives that other books overlook. - Concentrates on underlying principles that change little, even as the empirical literature moves on - Helps readers see corporate governance systems as interrelated or even intertwined external (country-level) and internal (firm-level) forces - Reviews the methodological tools of the field (theory and empirical), the most relevant models, and the field's substantive findings, all of which help point the way forward

Download or read book Executive Remuneration and Employee Performance Related Pay written by Tito Boeri and published by OUP Oxford. This book was released on 2013-03-28 with total page 311 pages. Available in PDF, EPUB and Kindle. Book excerpt: The recent financial crisis has created a public outcry over top-executive pay packages and has led to calls for reform of executive pay in Europe and the US. The current controversy is not the first - nor will it be the last - time that executive compensation has sparked outrage and led to regulation on both sides of the Atlantic. This volume compares US and European CEOs to trace the evolution of executive compensation, its controversies and its resulting regulations. It shows that many features of current executive compensation practices reflect the, often-unintended, consequences of regulatory responses to perceived abuses in top-executive pay, which frequently stem from relatively isolated events or situations. Regulation creates unintended (and usually costly) side effects and it is often driven by political agendas rather than shareholder value. Improvements in executive compensation are more likely to come from stronger corporate governance, and not through direct government intervention. The volume also examines the effects of incentive schemes and the patterns of performance related pay both within and across countries. It documents a number of empirical regularities and discusses whether government should intervene to support the implementation of incentive pay schemes. It argues that it makes little sense to undertake reform without detailed simulations of the effect on the economy under alternative economic scenarios, based on sound analysis and extensive discussion with labour, management, and government decision-makers.

Download or read book Performance Incentives Within Firms written by Raj Aggarwal and published by . This book was released on 1999 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical research on executive compensation has focused almost exclusively on the incentives provided to chief executive officers. However, firms are run by teams of managers, and a theory of the firm should also explain the distribution of incentives and responsibilities for other members of the top management team. An extension of the standard principal-agent model to allow for multiple signals of effort predicts that executives who have other, more precise signals of their effort than firm performance will have compensation that is less sensitive to the overall performance of the firm. We test this prediction in a comprehensive panel dataset of executives at large corporations by comparing executives with explicit divisional responsibilities to those with broad oversight authority over the firm and to CEOs. Controlling for executive fixed effects and the level of compensation, we find that CEOs have pay-performance incentives that are $5.85 per thousand dollar increase in shareholder wealth higher than the pay-performance incentives of executives with divisional responsibility. Executives with oversight authority have pay-performance incentives that are $1.26 per thousand higher than those of executives with divisional responsibility. The aggregate pay-performance sensitivity of the top management team is quite substantial, at $30.24 per thousand dollar increase in shareholder wealth for the median firm in our sample. Our work sheds light on the alignment of responsibility and incentives within firms and suggests that the principal-agent model provides an appropriate characterization of the internal organization of the firm.

Download or read book Manipulation Effects of Managerial Discretion on Executive Compensation written by Changzheng Zhang and published by Nova Science Publishers. This book was released on 2016 with total page 225 pages. Available in PDF, EPUB and Kindle. Book excerpt: Facing with the ever increasing change of the business environment, the firms have recognized that their persistent competitive edge increasingly depends on whether or not they own the dedicated, experienced and capable CEOs. In the global practice, more and more firms have tried, or are trying, or will try to change their CEOs in order to get higher firm performance or just to get out of recession. Especially it is true in China. However, in theory, the literature in the related fields, such as the corporate governance, the strategic human resource management, the strategy management, the principal-agent theory and so on, has only addressed how to arrange managerial discretion and executive compensation reasonably under the normal circumstances, while ignoring the conditions of CEO change. Therefore, each stakeholder in the post-CEO change period has no clear theoretical guidances on how to reallocate managerial discretion and reset executive compensation for the fresh CEOs. Such a theoretical research gap has leaded to a large number of failures in the issue of CEO change. In order to make up this gap, this book tries to investigate the relationship between managerial discretion and executive compensation under the conditions of CEO change, which can not only practically guide the re-balancing of the corporate governance and further improve the success possibility of CEO change, but can theoretically enrich the contributions in managerial discretion approach and executive compensation theory. Based on the comparative study perspective, by drawing on the data from Chinese listed companies as the sample and adopting the Correlation Analysis, Multiple Linear Regression and Hierarchical Models as the statistical analysis methods, the book investigates how managerial discretion, respectively for the fresh CEOs and the senior CEOs, manipulates each dimension of executive compensation, i.e. executive compensation level, CEO pay-performance sensitivity, executive compensation gap and executive-employee compensation gap. The book makes two valuable new findings: First, the book confirms that both the fresh CEOs and the senior CEOs have the motives and capabilities to manipulate each dimension of executive compensation, but varying by intent and intention; Second, the book proves that the fresh CEOs show higher firm-serving motives when they manipulate each dimension of executive compensation by performing managerial discretion, while the senior CEOs show relatively higher self-serving motives. Based on the research results, the book builds the fresh-keeping mechanisms of firm-serving motives of the fresh CEOs during their whole CEO tenure, which are of great meanings for the government, the scholars and the practitioners and so on.

Download or read book The Other Side of the Tradeoff written by Rajesh K. Aggarwal and published by . This book was released on 2000 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: The principal-agent model of executive compensation is of central importance to the modern theory of the firm and corporate governance, yet the existing empirical evidence supporting it is quite weak. The key cross-sectional prediction of the model is that the executive's pay-performance sensitivity is decreasing in the variance of the firm's performance. We demonstrate strong empirical confirmation of this prediction using a comprehensive sample of executives at large corporations. In general, the pay-performance sensitivity for executives at firms with the least volatile stock prices is an order of magnitude greater than the pay-performance sensitivity for executives at firms with the most volatile stock prices. This result holds for both chief executive officers and for other highly compensated executives. We show that estimates of the pay-performance sensitivity that do not explicitly account for the effect of the variance of firm performance are biased strongly toward zero. We also test for relative performance evaluation of executives against the performance of other firms. We find little support for the relative performance evaluation model. Our findings suggest that executive compensation contracts are optimal with respect to risk-sharing but do not incorporate the potential informational advantages of relative performance evaluation.

Download or read book Explaining Executive Pay written by Lukas Hengartner and published by Springer Science & Business Media. This book was released on 2007-12-31 with total page 224 pages. Available in PDF, EPUB and Kindle. Book excerpt: Lukas Hengartner shows that both firm complexity and managerial power are associated with higher pay levels. This suggests that top managers are paid for the complexity of their job and that more powerful top managers receive pay in excess of the level that would be optimal for shareholders.

Download or read book Pay for Results written by Mercer, LLC and published by John Wiley & Sons. This book was released on 2009-03-17 with total page 288 pages. Available in PDF, EPUB and Kindle. Book excerpt: The numerous incentive approaches and combinations and their implications can be dizzying even to the compensation professional. Pay for Results provides a road map for developing and implementing executive incentives that drive business needs and strategy. It is filled with specific analytic tools, including tables, exhibits, forms, checklists. In addition, it uncovers myths in performance measurement strategy and design. Timely and thorough, this book expertly shows businesses how to drive their specific needs and strategy. Human resources and compensation officers will discover how to apply performance metrics that align with shareholder investment.

Download or read book The Impact of the Likelihood of Turnover on Executive Compensation written by Jay C. Hartzell and published by . This book was released on 2008 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study analyzes the role of three incentive devices in managerial compensation: pay for performance, termination, and career concerns. A model is derived which shows that the three incentives are substitutes; where the termination (or career concerns) incentive is low, the optimal contract contains stronger pay-for-performance incentives. The empirical implication, then, is that the pay-for-performance sensitivity of managers should be decreasing (increasing) in the probability of termination (retirement). To test the model s predictions, I first use a sample of CEOs to estimate the probabilities of forced and voluntary turnover. Then, these estimated probabilities are compared to the CEOs estimated pay-for-performance sensitivity. The evidence is consistent with the hypothesis that boards consider the likelihood of termination when setting the compensation contract; the relationship between changes in CEO compensation and firm performance is decreasing in the estimated probability of forced turnover. While CEOs nearing retirement do not appear to have compensation that is increasingly sensitive to performance, their wealth does have increased sensitivity. Consistent with the model s intuition, the sensitivity of total CEO firm-related wealth to performance is positively related to the probability of voluntary turnover.

Download or read book Research Handbook on Executive Pay written by John S. Beasley and published by Edward Elgar Publishing. This book was released on 2012-01-01 with total page 553 pages. Available in PDF, EPUB and Kindle. Book excerpt: Research on executive compensation has exploded in recent years, and this volume of specially commissioned essays brings the reader up-to-date on all of the latest developments in the field. Leading corporate governance scholars from a range of countries set out their views on four main areas of executive compensation: the history and theory of executive compensation, the structure of executive pay, corporate governance and executive compensation, and international perspectives on executive pay. The authors analyze the two dominant theoretical approaches – managerial power theory and optimal contracting theory – and examine their impact on executive pay levels and the practices of concentrated and dispersed share ownership in corporations. The effectiveness of government regulation of executive pay and international executive pay practices in Australia, the US, Europe, China, India and Japan are also discussed. A timely study of a controversial topic, the Handbook will be an essential resource for students, scholars and practitioners of law, finance, business and accounting.

Download or read book Executive Compensation Regulation and the Dynamics of the Pay performance Sensitivity written by Ralf Sabiwalsky and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: A substantial number of empirical studies on the linear relationship between executive compensation and firm performance for European firms suggest that the pay-performance sensitivity is not significantly positive. We argue that a nonlinear structure fits the data better, because compensation contracts provide for minimum performance benchmarks and an upper limit to the variable component of compensation. We test for such discontinuities in the pay performance relationship, and confirm their existence, using hand collected data from German Prime All Share firms' CEO bonus compensation. It turns out that there is a significant positive relationship between return on assets and CEO bonus for ROA between -3% and +20%. Performance sensitivity is then tested for changes over time between 2006 and 2009. Results reveal that during the first three years after the introduction of a statutory transparency rule in 2005 governing the disclosure of individual CEO compensation, significant changes to compensation contracts did not occur; but that in 2009 the pay-performance sensitivity exhibited a significant increase, which coincides with the passing of a law that requires supervisory boards to ensure that new CEO employment contracts provide for "reasonable" compensation. -- Executive Compensation ; Regulation ; Pay Performance Sensitivity

Download or read book Impacts of Top Five Executives Compensation on Employee Wages written by Qianqian Li and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the impacts of incentive compensation to the top five executives on employee wages. We employ pay-performance sensitivity (PPS) to measure executive incentive compensation. Using data for firms from Wharton Research Data Services over 1992 to 2017 period, we find that there exists a negative relation between executive incentive compensation and employee wages. In addition, we examine the impacts of executive incentive compensation on employee wages in different industries and find that the impacts are more severe in non-technology firms than in technology firms. Finally, we show that the executives with higher incentive compensation are more likely to suppress employee wages in financially distressed firms. Since the impacts of incentive compensation to top five executives on employee wages are similar to those to CEO, top executives appear to work together as a team, which supports executive compensation as team perspective. Furthermore, firm performance may not be promoted by granting high incentive compensation to executives.

Download or read book CEO Pay and Firm Performance written by Paul L. Joskow and published by . This book was released on 2010 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study explores the dynamic structure of the pay-for- performance relationship in CEO compensation and quantifies the effect of introducing a more complex model of firm financial performance on the estimated performance sensitivity of executive pay. The results suggest that current compensation responds to past performance outcomes, but that the effect decays considerably within two years. This contrasts sharply with models of infinitely persistent performance effects implicitly assumed in much of the empirical compensation literature. We find that both accounting and market performance measures influence compensation and that the salary and bonus component of pay as well as total compensation have become more sensitive to firm financial performance over the past two decades. There is no evidence that boards fail to penalize CEOs for poor financial performance or reward them disproportionately well for good performance. Finally, the data suggest that boards may discount extreme performance outcomes -both high and low - relative to performance that lies within some `normal' band in setting compensation.

Download or read book Impacts of Executive Compensation on Employee Wages written by Baoqi Zhu and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the impact of CEO equity-based compensation (EBC) on employee wages. Using pay-performance sensitivity (PPS) as a measure for CEO equity-based compensation, we find that CEOs with higher EBC tend to pay their employees lower wages. We also examine the impact of EBC on average employee wage in different industries and find that such an impact is more evident in non-technology firms than in technology firms. Finally, we find that CEOs with higher pay-performance sensitivities are more likely to depress employee wages when the business cycle shows downturn. While the literature of CEO compensation suggests that EBC can mitigate agency conflicts between managers and shareholders, we find that the high level of EBC can create another aspect of agency conflicts between managers and shareholders, contributing to income inequality even within corporations.

Download or read book Is Say on Pay All About Pay The Impact of Firm Performance written by Jill E. Fisch and published by . This book was released on 2018 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Dodd-Frank Act of 2010 mandated a number of regulatory reforms including a requirement that large U.S. public companies provide their shareholders with the opportunity to cast a non-binding vote on executive compensation. The “say on pay” vote was designed to rein in excessive levels of executive compensation and to encourage boards to adopt compensation structures that tie executive pay more closely to performance. Although the literature is mixed, many studies question whether the statute has had the desired effect. Shareholders at most companies overwhelmingly approve the compensation packages, and pay levels continue to be high.Although a lack of shareholder support for executive compensation is relatively rare, say on pay votes at a number of companies have reflected low levels of shareholder support. A critical question is what factors drive a low say on pay vote. In other words, is say on pay only about pay?In this article, we examine that question by looking at the effect of three factors on voting outcomes -- pay level, sensitivity of pay to performance, and economic performance. Our key finding is the importance of economic performance to say on pay outcomes. Although pay-related variables affect the shareholder vote, even after we control for those variables, an issuer's economic performance has a substantial effect and, perhaps most significantly, shareholders do not appear to care about executive compensation unless an issuer is performing badly. In other words, the say on pay vote is, to a large extent, say on performance.This finding has important implications. First, it raises questions about the federally-mandated shareholder voting right as a tool for concerns about executive compensation. Say on pay has limited effectiveness if it is only being used to discipline managers who are underperforming or alternatively is not a vote on outsize or inordinate pay as it was intended to be. Second, and more important, to the extent that the shareholder vote influences board behavior, granting shareholders another forum for signaling their dissatisfaction with a firm's economic performance may be counterproductive. If investors are signaling concerns over near-term stock performance through their say on pay votes, they may be increasing director incentives to focus on short-term stock performance rather than firm value.