Common ownership and executive pay-for-performance sensitivity: Evidence from China

This study focuses on the impact of common ownership on executive pay-for-performance sensitivity using a sample of A-share listed firms in China from 2008 to 2020. We find common ownership significantly improves executive pay-for-performance sensitivity and plays a monitoring and governance role. Meanwhile, the impact of common ownership on executive pay-for-performance sensitivity is more significant in non-state-owned firms (non-SOEs) and when a firm faces a highly competitive product market. The mechanism tests indicate that common ownership affects executive pay-for-performance sensitivity through the information and governance mechanisms. Further analyses show that the portion of compensation explained by common ownership significantly enhances future firm performance. Overall, our findings validate the positive role of common ownership in corporate governance.     

董事网络、独立董事治理与高管激励

独立董事的治理行为受到所处社会网络的影响。基于"董事在董事会同时任职的直接或间接联结关系"而形成的董事网络,本文利用社会网络分析方法检验了独立董事的网络特征对其发挥在促进高管激励有效性影响中的作用机理。结果发现:公司独立董事网络中心度越高,高管薪酬-业绩敏感性越强;与非国有上市公司相比,国有上市公司中独立董事网络中心度与高管薪酬-业绩敏感性的正相关关系更弱;进一步研究发现,用独立董事网络中心度解释的高管薪酬部分对未来业绩有促进作用。结论丰富了"网络和治理"研究的证据。     

公司社会声望与高管薪酬:公共服务抑或职业声誉

本文基于“隐性—显性”契约激励研究范式,探讨公司社会声望对高管薪酬的影响以及作用机制。本文选取2009—2017年间的非金融A股上市公司为样本,研究发现,拥有较高社会声望的公司,其高管显性薪酬较低。具体而言,公共地位较高的国有企业、具有较高市场声誉的民营上市公司,其高管薪酬平均而言分别比其他上市公司低4.97%和6.30%。进一步地,我们发现公司声望对我国高管显性薪酬契约存在两种作用机制:一方面,公共地位较高的国有企业,可以为高管带来较高的社会声誉和社会认可,满足了“公共服务”类高管的社会声望偏好,从而降低了显性薪酬的支付水平;另一方面,市场声誉较高的民营企业,可以为高管带来较高的职业声誉和未来职业利益,符合“以商为荣”类高管的社会声望偏好,使高管愿意接受较低的显性薪酬。本文的结论为公司声望作为一种有价值的资源,可以对高管显性薪酬形成议价能力提供了重要证据,揭示了公司声望对高管显性契约激励的影响路径;同时,为国有企业高管薪酬契约设计以及激励机制提供了一定启示。     

Executive Compensation in UK Property Companies

We study the drivers of executive compensation in the listed UK property sector. The UK provides an excellent opportunity to analyze executive compensation due to high transparency in the different components of executive compensation. We show that company size is the most important variable in explaining the level of executive compensation. We find that absolute and relative share performance significantly explains long-term compensation, that management style has a distinct influence on the level of executive compensation, and that using alternative monitoring mechanisms (institutional shareholders, debtholders, and outside directors) leads to higher levels of long-term incentives. We find only weak evidence of pay-performance sensitivity for both cash and long-term compensation. Executive shareholdings provide a much stronger link between pay and performance than does executive compensation.

公司社会声望与高管薪酬:公共服务抑或职业声誉

本文基于“隐性—显性”契约激励研究范式,探讨公司社会声望对高管薪酬的影响以及作用机制。本文选取2009—2017年间的非金融A股上市公司为样本,研究发现,拥有较高社会声望的公司,其高管显性薪酬较低。具体而言,公共地位较高的国有企业、具有较高市场声誉的民营上市公司,其高管薪酬平均而言分别比其他上市公司低4.97%和6.30%。进一步地,我们发现公司声望对我国高管显性薪酬契约存在两种作用机制:一方面,公共地位较高的国有企业,可以为高管带来较高的社会声誉和社会认可,满足了“公共服务”类高管的社会声望偏好,从而降低了显性薪酬的支付水平;另一方面,市场声誉较高的民营企业,可以为高管带来较高的职业声誉和未来职业利益,符合“以商为荣”类高管的社会声望偏好,使高管愿意接受较低的显性薪酬。本文的结论为公司声望作为一种有价值的资源,可以对高管显性薪酬形成议价能力提供了重要证据,揭示了公司声望对高管显性契约激励的影响路径;同时,为国有企业高管薪酬契约设计以及激励机制提供了一定启示。     

Executive compensation and corporate governance in China

We investigate executive compensation and corporate governance in China's publicly traded firms. We also compare executive pay in China to the USA. Consistent with agency theory, we find that executive compensation is positively correlated to firm performance. The study shows that executive pay and CEO incentives are lower in State controlled firms and firms with concentrated ownership structures. Boardroom governance is important. We find that firms with more independent directors on the board have a higher pay-for-performance link. Non-State (private) controlled firms and firms with more independent directors on the board are more likely to replace the CEO for poor performance. Finally, we document that US executive pay (salary and bonus) is about seventeen times higher than in China. Significant differences in US-China pay persist even after controlling for economic and governance factors.     

Executive compensation and risk: The case of internet firms

A major prediction of agency theory is that there is a trade-off between risk and incentive compensation. Aggarwal and Samwick (1999) [Aggarwal, R., Samwick, A., 1999. The other side of the trade-off: the impact of risk on executive compensation. Journal of Political Economy, 107, 65–105.] directly test and find results consistent with agency theory—pay-performance sensitivity is decreasing in risk. However, Prendergast, 2002, Prendergast, 2000 [Prendergast, C. 2002. The tenuous trade-off between risk and incentives. Journal of Political Economy 110 (5), 1071–1102; Prendergast, C. 2000. What trade-off risk and incentives? The American Economic Review 90 (2), 421–425.] offers a number of reasons why the sensitivity of pay to performance can be higher in risky environments. We use data from a sample of Internet firms for 1997–1999 to provide empirical evidence on these competing arguments regarding the relation between risk and CEO compensation. Consistent with Aggarwal and Samwick (1999), our results show that pay–performance sensitivity declines with increases in variance in a base model. After controlling for size, we find that pay–performance sensitivity is positively related to risk, consistent with the theoretical predictions in Prendergast, 2002, Prendergast, 2000. However, sensitivity tests in later periods show that the Aggarwal and Samwick (1999) results are more robust to changes in the economic environment.     

Government's Say-on-pay Policy and Corporate Risk-taking: Evidence from China

This paper investigates whether the restriction on executive compensation in Chinese state-owned enterprises (SOEs) imposed by the Government's say-on-pay schemes is conducive to corporate risk taking. Using a sample of listed SOEs over the period 2005–2018, we find that the restriction on executive compensation is negatively associated with corporate risk taking, suggesting that regulatory intervention in executive pay may produce unintended consequences. Our analyses also demonstrate that this negative regulatory effect on corporate risk taking is driven by listed SOEs in the growth stage of the business life cycle and by those in the provinces with a significant degree of government intervention. An additional test shows that the negative effect of the pay restriction on risk taking disappears in the SOEs in which managers hold shares, suggesting that an alignment of interests between managers and other shareholders mitigates the negative effect of the pay restriction. Our finding is robust to a batch of tests to alleviate the concerns about self-selection and reverse causality.     

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。     

Active Institutional Shareholders and Costs of Monitoring: Evidence from Executive Compensation

Although evidence suggests that institutional investors play a role in monitoring management, not all institutions are equally willing or able to serve this function. We present a stylized model that examines the effects of institutional monitoring on executive compensation. The model predicts that institutions' influence on managers' pay-for-performance sensitivity and level of compensation is enhanced when institutions have lower implied costs of monitoring, but that these effects are attenuated when the firm-specific cost of monitoring is high. Our empirical results are broadly consistent with these implications, suggesting that independent investment advisors and investment company managers have advantages in monitoring firms' management.     

Cost behavior and executive bonus compensation

Prior literature provides compelling evidence of an asymmetric relation between executive bonus compensation and earnings performance. In particular, this literature reports that compensation committees assign greater weight to good (positive) earnings performance than poor (negative) earnings performance. Taken together, the prior literature provides strong support for critics who claim that compensation committees blindly protect executives from earnings underperformance. We further examine this issue by investigating whether a firm's cost behavior (i.e., the relation between expenses and sales) provides an explanation for the apparent inefficiency in executive compensation contracts. Our evidence suggests that executives are rewarded more for increases in ROA that arise from normal cost behavior than other increases in ROA consistent with these increases being perceived as more persistent. In contrast, we do not find such a relationship for decreases in ROA which suggests that executives are largely shielded from decreases in ROA that follow normal cost behavior. We examine two factors suggested by the prior literature, expected future sales and the extent of capacity utilization, which may provide an explanation for why executives are shielded from normal cost behavior decreases in ROA. When these additional factors are included in our empirical models, our evidence suggests that the asymmetric relation between changes in CEO bonus compensation and increases and decreases in earnings performance documented in prior literature goes away. That is, our results suggest that compensation committees do not blindly protect executives for earnings underperformance. On the contrary, our evidence suggests that these committees take into account other non-earnings information when deciding how much weight to give to a decrease in earnings and that executive compensation may not be as inefficient as suggested by prior research.     

高管薪酬:激励还是自利?——来自中国上市公司的证据

近年来中国上市公司的高管薪酬增长迅速并引起社会的广泛关注。本文收集了2004-2008年中国上市公司前三名高管的薪酬水平,考察高管薪酬与公司绩效、高管控制权、政府管制及代理成本之间的关系。研究发现:(1)高管薪酬仅与ROA显著正相关,但与资产获现率(经营净现金/总资产)及股票收益率没有显著的正相关关系。(2)高管的薪酬水平随着其控制权的增加而显著提高。(3)对比国有公司,非国有公司的高管更容易利用其控制权来提高自身的薪酬水平。(4)高管高薪并未有效降低公司的代理成本,反而提高了代理成本。本文的研究结果证实了我国上市公司的高管在其薪酬制定中存在明显的自利行为,且这种自利行为降低或者消除了薪酬的激励作用。     

Mandatory IFRS adoption and executive compensation:Evidence from China

This study investigates how the mandatory adoption of International Financial Reporting Standards(IFRS) affects the contractual benefits of using accounting information to determine executive compensation in China. After controlling for firm and corporate governance characteristics, we find strong evidence supporting the positive role of mandatory IFRS adoption on the accounting-based performance sensitivity of executive compensation. Subsample analysis suggests that improvements in accounting-based performance sensitivity after IFRS adoption differ across regions with various levels of institutional quality and across firms that are affected to a different extent by the adoption. Additional analysis supports the argument that the positive effects of IFRS adoption on the use of accounting performance in executive compensation are driven by the reduction in accounting conservatism associated with IFRS adoption.     

Executive incentives and payout policy: Empirical evidence from Europe

We investigate how corporate payout policy is influenced by executive incentives, i.e. stock and option holdings, stock option deltas and stock-based pay-performance sensitivity for 1,650 publicly listed firms from the UK, Germany, France, Italy, the Netherlands and Spain, over the period from 2002 to 2009. Our results show that executive stock option holdings and stock option deltas are associated with lower dividend payments in our sample of European countries, where we do not observe any presence of dividend protection for executive stock options. We find that this relationship is mainly driven by exercisable stock options and by options that are in the money. Additionally, we observe that executive stock option holdings and stock option deltas have a negative impact on total payout, suggesting that executives do not substitute share repurchases for dividends. Furthermore, the fraction of share repurchases in total payout increases as executive stock option holdings and stock option deltas increase. Finally, our results show that executive share ownership and stock-based pay-performance sensitivity may mitigate agency conflicts by significantly increasing the level of total payout.     

Executive incentive compatibility and selection of governance mechanisms

Executive incentive compatibility plays a crucial role in firm's selection of corporate governance mechanisms. We provide a simple model to explain why firms with enough executive incentive compatibility still prefer having external governance mechanisms, and firms with poor executive incentive compatibility have to rely on a combination of large investors monitoring and external governance. This model facilitates a better understanding of the co-existence of the two governance mechanisms and also reconciles conflicting findings with respect to a substitutive and complementary relationship between the two governance mechanisms. Empirical evidence supports there is a substitutive relation between large investors monitoring and executive compensation.     

投资者情绪、经理激励契约与企业投资

本文基于中国上市公司经理激励契约安排的制度背景,把经理激励契约纳入投资者非理性分析框架,就投资者情绪与经理激励契约如何相互作用影响企业投资进行了理论分析,并进行了实证检验。结果发现,高管持股会诱发高管利用投机的股市进行过度投资,而与股价弱相关的货币薪酬没有这种作用,而且经理薪酬的这种作用因企业实际控制人性质不同而有所差异。本研究表明高管持股在企业投资决策中具有负面的公司治理效应。     

Institutional Investors and Executive Compensation

We find that institutional ownership concentration is positively related to the pay‐for‐performance sensitivity of executive compensation and negatively related to the level of compensation, even after controlling for firm size, industry, investment opportunities, and performance. These results suggest that the institutions serve a monitoring role in mitigating the agency problem between shareholders and managers. Additionally, we find that clientele effects exist among institutions for firms with certain compensation structures, suggesting that institutions also influence compensation structures through their preferences.     

Executive pay and firm performance in the Philippines

This paper provides the first systematic evidence on the nature of the relation between executive compensation and firm performance in the Philippines. Comparable to studies of Japan, Korea, and China, we find a positive relation between executive compensation and performance in the Philippines for those firms not affiliated to a corporate group, but that this relation does not hold for affiliated firms. We conclude that the substantial portion of the Philippine economy that is under the control of group networks incentivize managers in ways other than through use of pay–performance schemes.     

The efficiency of compensation contracting in China: Do better CEOs get better paid?

Over recent years, China adopted a number of ‘western-style’ reforms of corporate governance and executive compensation. We investigate whether boards of Chinese firms evaluate CEO ability and remunerate their CEOs accordingly, an essential tenet of efficient compensation contracting. Using Data Envelopment Analysis to measure CEO ability, we do not find any evidence that CEO ability matters in compensation contracting decisions—it does not lead to either higher pay, stronger pay-for-performance sensitivity, or a higher likelihood of equity grants. This is surprising, since we find evidence that higher ability CEOs achieve superior firm performance. In contrast, we find that powerful CEOs do not overperform, while they enjoy large abnormal pay. Overall, our results suggest that Chinese firms fail to embrace new corporate governance reforms and are unable to fully utilize the reforms’ benefits.

     

Executive turnover in China’’s state-owned enterprises:Government-oriented or market-oriented?

Executive turnover is important in the governance of state-owned enterprises (SOEs). Herein, we focus on the executive turnover of China’s SOEs, and the implementation of related evaluation mechanisms under different levels of government intervention. We collect executive turnover data of listed Chinese SOEs from 1999 to 2012, and find that about half of the SOE executives leave office within two terms, which is in line with government recommendations. Moreover, we find that more than a third of executives leave after less than one term, and nearly 20% after more than two terms, highlighting the uncertainty and unpredictability of executive appointments in SOEs. We also find that the executive evaluation mechanism for SOEs is implemented differently under different levels of government intervention. SOEs under weak intervention, such as those controlled indirectly by governments, controlled with low shareholdings, from non-regulated industries or in the Eastern regions, prefer the market-oriented evaluation method, which places more weight on executives’ economic performance. In contrast, those under strong intervention prefer the government-oriented evaluation method, which is characterized by policy burden.