Boards,Executive Excess Compensation,and Shared Power: Evidence from Nonprofit Firms

We investigate how executives, the board, and excess compensation jointly affect the performance of nonprofits. Since the common measure of nonprofit performance often includes salaries, we also use expenses that directly benefit the targeted population. Our results suggest that above average compensation for executives is associated with poor firm performance. However, the negative relation of CEO pay to performance occurs for firms with only one executive, the CEO. We conclude that a powerful CEO with autonomy can harm firm performance, but other executives can mitigate these agency problems. The board also appears to monitor direct community benefits more than indirect benefits.     

On REIT CEO Compensation: Does Board Structure Matter?

In a perfect world where the board of directors is independent of CEO influence, CEO pay-for-performance compensation contracts should be a function of performance only. If the CEO can influence board structure through his ownership of company stock or chairmanship of the board, however, performance contracts are sub-optimal and agency problems arise, which allow the CEO to extract rent and demand compensation in excess of the equilibrium level. As such, models of compensation contracts must include board and ownership structure variables, in addition to the traditional economic determinants. Our analyses with REITs corroborate this notion. Our data demonstrate that the structure of REIT boards are not independent of CEO influence, and significant agency problems exist allowing the CEO to design boards that reward him at the cost of shareholder wealth. CEO compensation in REITs depends significantly on the usual economic measures of performance including firm size and return on assets; more importantly, CEO compensation is higher in REITs where the board is weak in monitoring because of large size, and older directors; the effect of a blockholder is adverse, however. This study provides additional evidence to the growing literature that observed board structures are ineffective in monitoring and governance.     

Family ties,board compensation and firm performance

This study examines the effect of corporate boards with family ties on board compensation and firm performance. Family firms dominate the vast majority of enterprise forms around the world. Despite possible agency problems between large and small shareholders, family boards may contribute specific knowledge and competitive advantage to the firm. This paper shows that the excess board compensation of firms with a non-family CEO is positively related to the percentage of board members with family ties, but the presence of family boards cannot justify the outcome of firm performance, suggesting a negative entrenchment of firms with a non-family CEO. By contrast, the excess board compensation of firms with a family CEO is found to be unrelated to the percentage of board members with family ties, and the presence of family boards is positively associated with firm performance, suggesting the convergence-of-interests of firms with a family CEO.     

Excessive managerial entrenchment,corporate governance,and firm performance

This paper investigates the differential impact of positive and negative excessive managerial entrenchment on the CEO turnover-performance sensitivity, CEO compensation, and firm performance. We measure the degree of managerial entrenchment using the E-index introduced by Bebchuk et al. (2009). Our findings suggest that an increase in excess CEO entrenchment reduces the likelihood of CEO turnover due to poor performance. We also show a positive association between excessive entrenchment and CEO compensation as managers gain more power and authority when they are entrenched. On the other hand, excess CEO entrenchment has an inverse correlation with firm performance and firm value. Overall, we propose that excessive managerial entrenchment has a converse impact on board monitoring and shareholders’ welfare.     

Star CEOs or Political Connections? Evidence from China's Publicly Traded Firms

This paper studies China's “star CEOs” defined as members of the National People's Congress (NPC) or the National Committee of the Chinese People's Political Consultative Conference (CPPCC) and “politically connected” CEOs who have previous government or military experience. We evaluate the effect of “star CEOs” and “politically connected” CEOs on firm performance and CEO compensation. We find that announcement date returns, CEO compensation and incentives are all higher in firms that appoint “star CEOs”. However, the mechanism explaining these various premiums is largely political connectedness of these star CEOs. Our study finds only modest evidence that star‐CEO status directly determines firm performance. Our analysis strongly suggests that compensation and performance premiums are mostly driven by CEO political connections, as opposed to CEO talent/star effects.     

Zombie Board: Board Tenure and Firm Performance

We show that board tenure exhibits an inverted U‐shaped relation with firm value and accounting performance. The quality of corporate decisions, such as M&A, financial reporting quality, and CEO compensation, also has a quadratic relation with board tenure. Our results are consistent with the interpretation that directors’ on‐the‐job learning improves firm value up to a threshold, at which point entrenchment dominates and firm performance suffers. To address endogeneity concerns, we use a sample of firms in which an outside director suffered a sudden death, and find that sudden deaths that move board tenure away from (toward) the empirically observed optimum level in the cross‐section are associated with negative (positive) announcement returns. The quality of corporate decisions also follows an inverted U‐shaped pattern in a sample of firms affected by the death of a director.     

The effect of financial reporting quality on CEO compensation structure: Evidence from accounting comparability

This study examines the effect of accounting comparability on the design of CEO compensation structure. After controlling for firm-specific attributes, we find that accounting comparability is positively associated with CEO equity-based compensation intensity and pay-performance sensitivity. This suggests that the improved comparability increases the usefulness of equity-based compensation and a firm is willing to offer more equity-based compensation contracts to CEOs and increase their pay-performance sensitivity. Further, we find that the impact of comparability on the CEO’s compensation contract increases with information asymmetry, which is consistent with the notion that accounting comparability is a quality of financial reporting that facilitates the use of equity-based compensation in a poor information environment. Our analysis also reveals that the effect of accounting comparability on CEO compensation structure is greater when a firm’s corporate governance is strong, consistent with the complementary relation between comparability and the exiting corporate governance in determining CEO compensation schemes. Overall, our evidence suggests that firms utilize more equity-based compensation as a proportion of total compensation under greater accounting comparability and enhance the alignment between equity-based compensation and firm performance.     

Which came first,CEO compensation or firm performance? The causality dilemma in European companies

This study uses both a functionalist paradigm of social theory and agency theory assumptions to examine whether CEO remuneration is performance sensitive and, vice versa, whether companies that pay their CEOs more perform better. Our analysis is based on the sample of 330 large European firms for the period from 2009 to 2013. The findings of panel data analysis confirm that CEO compensation is positively associated with corporate performance, and vice versa. The simultaneous estimation, in which we treat both compensation and firm performance as endogenous using a two-stage least squares method, shows that companies tie bonuses to accounting-based measures and this incentive pay enhances corporate internal performance. However, compensation linked to market-based measures does not improve firm performance.     

CEO DIRECTORS,EXECUTIVE INCENTIVES,AND CORPORATE STRATEGIC INITIATIVES

I study how directors who are chief executive officers (CEOs) of other firms affect board effectiveness. I find that CEOs are paid more and their compensation is less sensitive to firm performance when other CEOs serve as directors. This is not an employment risk premium because CEO directors are not associated with higher turnover‐performance sensitivity. Also, CEO directors have no effect on corporate innovation but are associated with higher acquisition returns, especially for complex deals. My results suggest that the advisory benefits of CEO directors must be balanced against the distortions in executive incentives associated with their board service.     

The Effect of the Mandatory Adoption of Corporate Governance Mechanisms on Executive Compensation

This study investigates empirically the effect of corporate governance principles on executive compensation and firm performance prior to and after the adoption of the first Greek Law on corporate governance. Prior to the adoption of the law, managers were not compensated in line with their performance. Since its introduction, a significant link has been observed between executive compensation and company performance as measured by accounting measures of performance. Following the adoption of corporate governance principles by law, the main mechanism that controls executive compensation is the election of independent non-executive board members. The results are robust to alternative accounting measures of performance.     

The dynamics of CEO equity vs. inside debt and firm performance

This paper provides new evidence on the comparative dynamic effects of CEO inside debt and equity compensation on firm performance as measured by Tobin’s Q. In contrast to the extant literature, we find significant empirical evidence supporting the classic Jensen and Meckling (1976) premise that managers should receive debt vs. equity compensation in proportion to the capital structure of the firm. We also provide new evidence showing that the effects of the CEO compensation structure on firm performance are dependent on the CEO’s time horizon, as measured by the expected period of employment to retirement. We show that the incremental benefits of equity compensation to performance increase with the CEO’s projected time to retirement. A similar, but insignificant relationship is observed for CEO inside debt compensation. Cash compensation is more beneficial to the firm when concentrated near the end of the CEO’s tenure.     

公司绩效、公司治理与管理者报酬实证研究

本文以中国深、沪两市在2004年上市公司样本作为公司绩效、公司治理与管理者报酬研究对象,从公司绩效、股权结构的安排以及董事会治理三个方面,通过构建最小二乘模型进行多元线性回归,来研究公司内部治理机制对公司管理层报酬的影响。研究结果表明:公司绩效、国有股比例、董事会规模、两职兼任均对管理者报酬产生显著的影响。     

Pay me Right: Reference Values and Executive Compensation

This paper examines the importance of reference values for executive compensation contracts. We rely on a quasi‐experimental setting (the adoption of pay guidelines), and a well‐defined measure of individual‐specific reference values to provide evidence on how a change in CEO reference compensation leads to subsequent changes of actual pay. We find that executive compensation adjusts gradually towards the new reference values, and that the speed of the adjustment depends on the corporate governance characteristics: the firm ownership structure, the role of the State and of the employees in the firm decision making. These results provide empirical support for theoretical models of bargaining that take into account reference values.     

CEO Compensation and Board Structure

In response to corporate scandals in 2001 and 2002, major U.S. stock exchanges issued new board requirements to enhance board oversight. We find a significant decrease in CEO compensation for firms that were more affected by these requirements, compared with firms that were less affected, taking into account unobservable firm effects, time-varying industry effects, size, and performance. The decrease in compensation is particularly pronounced in the subset of affected firms with no outside blockholder on the board and in affected firms with low concentration of institutional investors. Our results suggest that the new board requirements affected CEO compensation decisions.     

Corporate governance and chief executive officer dismissal following poor performance: Australian evidence

This paper investigates the association between corporate performance and the probability of chief executive officer (CEO) dismissal for large corporations in Australia. Consistent with prior US and UK studies, corporate performance is negatively related to the probability of CEO dismissal, using both accounting and market‐based performance measures. This paper also investigates whether key corporate governance characteristics affect the likelihood of CEO dismissal, by examining their effect on the strength of the negative association between corporate performance and CEO dismissal. The only significant variable is size of the board. Although its effect is opposite to that hypothesized, this paper provides a plausible explanation. Overall, the results are consistent with shareholder wealth considerations dominating board behaviour in Australia.     

Accounting fundamentals and CEO bonus compensation

Research indicates that there is a positive association between accounting earnings and chief executive officer (CEO) cash compensation; however, evidence also suggests that this positive association ceases to exist when earnings performance is poor or declining. This latter result has led some critics of corporate compensation policies to conclude that CEOs are not penalized for poor or declining firm performance. The purpose of this study is to further illuminate the pay-performance debate by expanding the traditional executive bonus compensation model to include a set of accounting fundamentals that prior research indicates are related to both current and future firm performance. Our results indicate that there is a highly significant relationship between accounting fundamentals and the level of and change in CEO bonus compensation. Moreover, we find a highly significant relationship between accounting fundamentals and both bonus omissions and bonus reductions. When earnings are negative or declining, we find that the above relationships remain intact. In contrast, when earnings are negative or declining, we find that the relationship between aggregate earnings and bonus compensation is weak or insignificant in most of our analyses. Taken together, our results suggest that the apparently weak relationship between accounting earnings and CEO bonus compensation (particularly when earnings are negative or declining) is partly due to the fact that the bonus compensation model excludes accounting fundamentals which are strongly associated with bonus compensation. Thus, we conclude that (i) bonus compensation is more closely tied to firm performance than critics sometimes claim and (ii) bonus compensation awarded to CEOs when earnings performance is poor is at least partially explained by the presence of favorable accounting fundamentals.     

Corporate governance or globalization: What determines CEO compensation in China?

This paper examines the relationship between corporate governance and CEO compensation in China. In contrast to results derived from U.S. data, we find little evidence that Chinese CEOs take advantage of weaker board structures or less demanding shareholders to extract higher compensation packages. Instead, our results lend support to the view that the increasingly global managerial labor market and compensation standards have a greater impact on CEO pay level. Our study suggests that CEOs in developing economies like China, in our case, benefit more from their degree of exposure to these changes than from corporate governance imperfections.     

Australian chief executive officer remuneration: pay and performance

International studies document strong evidence that chief executive officer (CEO) remuneration is positively correlated with corporate performance. Prior Australian studies, however, find no positive link between CEO pay and market performance. In the present paper we re‐examine the association between Australian CEO remuneration and firm performance using standard empirical models from the international literature. We find that in every respect the Australian evidence is consistent with international findings for firms of the USA, UK and Canada. In particular, we document CEO pay–performance association as positive and statistically significant.     

Compensation committee governance quality,chief executive officer stock option grants,and future firm performance

This paper examines whether the relationship between future firm performance and chief executive officer (CEO) stock option grants is affected by the quality of the compensation committee. Compensation committee quality is measured using six committee characteristics – the proportion of directors appointed during the tenure of the incumbent CEO, the proportion of directors with at least ten years’ board service, the proportion of directors who are CEOs at other companies, the aggregate shareholding of directors on the compensation committee, the proportion of directors with three or more additional board seats, and compensation committee size. We find that future firm performance is more positively associated with stock option grants as compensation committee quality increases.     

Length of Board Tenure and Outside Director Independence

I posit and test two competing views on the significance of outside director tenure lengths; the expertise hypothesis suggesting that extended board service time is a sign of director commitment, experience, and competence and the management‐friendliness hypothesis suggesting that extended board service time marks directors who befriend management at the expense of shareholders. I find evidence that Senior directors, defined as directors with twenty or more years of board service, are almost twice as likely to occupy a 'management‐affiliated' profession compared to the rest, and that they are also more likely to staff the firm's nominating and compensation committees. Senior director participation in the compensation committee is associated with higher pay for the CEO, especially when the CEO is more powerful in the firm. These results are consistent with the management‐friendliness hypothesis, and highlight a need for setting term limits for directors.