Executive compensation in North American high-technology firms: a contextual approach

After reviewing the literature surrounding the link between executive compensation and innovation activities of North American firms, we examine two gaps in the area. First, we analyze how contextual factors can affect CEO pay in high-technology companies. In particular, we study three contextual dimensions: political, economic, and social. Second, we consider the specific case of executive compensation in high-technology firms when family ties are present at the helm. Drawing on agency rationale and previous research, we develop a series of instrumental propositions intended to provide the theoretical basis for a future research agenda in the area.     

Towards a Social Theory of Agency

We challenge critics of agency theory who suggest that agency theory's value does not extend outside a narrow context dominated by egocentric agents seeking only to maximize wealth at the expense of the principal. Instead, we argue that agency theory's flexibility allows for its application to a variety of non‐traditional settings where the key elements of agency theory, such as self‐interest, information asymmetry, and the mechanisms used to control agency costs can vary beyond the narrow assumptions implied in traditional agency‐based research. We suggest that extending agency theory to diverse settings using a deductive approach can be accomplished by formally recognizing and incorporating the institutional context surrounding principal–agent (P–A) relations into agency‐based models. Thus, criticisms that agency theory fails to acknowledge the social context in which P–A relations occur provides not a barrier but an opportunity for extending our understanding of P–A relations to a variety of diverse contexts.     

A multiobjective integer programming model for the land acquisition problem

The purpose of this paper is to present a multiobjective integer programming formulation for the analysis of the land acquisition problem. There are two important contributions of this paper. First, the model incorporates the discrete and multiobjective nature of land acquisition. Second, we present an efficient, specialized algorithm for finding non-inferior solutions of a multiobjective integer program, a problem for which a general-purpose algorithm, applicable to moderately sized problems, does not exist.     

高管激励机制与企业绩效相关性研究——基于主板、创业板上市公司的对比分析

企业代理问题在市场化改革不断深入的今天已成为中国公司亟待解决的发展障碍。本文结合2474家主板上市公司和379家创业板上市公司治理结构以及高管激励机制对于企业绩效的实际影响,通过构建动态博弈模型和回归模型,发现以薪酬和股票期权形式的高管激励的正相关性随着高管股权稀释程度的上升而减小。本文还研究发现,与理论预测不同,独立董事占比与企业绩效有着负相关性,反映出我国的独立董事制度还不够完善。另外,笔者创新地对比了两板公司由于公司规模、GDP等因素对激励体系产生的不同反应,发现处于起步阶段的创业板公司绩效同高管激励机制和公司内控体系并没有主板公司那样明显的相关性。     

Boards of Directors and Shark Repellents:Assessing the Value of an Agency Theory Perspective

Because shark repellents decrease the vulnerability of firms (and their incumbent managers) to the market for corporate control, the decision to adopt these devices represents an excellent test of agency theory. In this empirical study, we examined the relationships between the adoption of shark repellents and several mechanisms that, according to agency theory, should align the interests of corporate board members and shareholders and/or make directors more effective monitors of management behaviour. Of the variables included, only board stock ownership (especially by employee directors) was linked to a reduced propensity to adopt shark repellents in the predicted manner. Two variables not immediately as- sociated with agency theory — the proportion of inside directors appointed by the incumbent chief executive officer (CEO) and a lower ratio of CEO compensation to the compensation of other top executives — were linked to higher rates of shark repellent adoption. Given that agency theory explains relatively little of the variance in shark repellent adoption, we advocate serious consideration of other theoretical formulations for corporate governance, including two approaches — stewardship theory and agent morality — that take the moral ('other regarding') obligations of directors seriously.     

Does CEO compensation matter in boosting firm performance? Evidence from listed French firms

The paper investigates the impact of chief executive officer (CEO) compensation on firm performance from a sample of 155 listed French companies on SBF 120, over 2009–2018. Findings suggest that an increase in CEO compensation seems to improve the accounting‐based firm performance, nevertheless it hurts the firm stock market value. More pronounced results are reported when we control for sector compensation interactions. We argue that attractive compensation may improve the executive services in achieving shareholders' objectives, but investors seem to not appreciate a CEO compensation increase. Based on the agency theory, it might be argued that investors fear possible executive opportunistic behavior encouraging them to enjoy overcompensation .     

WHAT MOTIVATES TAX COMPLIANCE?

In this paper, I review and assess what we have learned about what motivates individuals to pay – or to not pay – their legally due tax liabilities. I focus on three specific questions. First, what does theory say about what motivates tax compliance? Second, what does the evidence show? Third, how can government use these insights to improve compliance? I conclude with some suggestions – and some predictions – for future research.     

Alliance Dynamics for Entrepreneurial Firms

abstract    Small firms are thought to encounter various difficulties implementing strategic alliances. Due to these problems, they may be less able to reap the benefits of alliance adaptation, and the changes that do occur in alliances may not coincide with a small firm's interests. The evidence we present on contractual renegotiations in alliances suggests that small firms are no more or less likely to adjust their alliances' contracts in general. However, small firms tend to bear inefficiencies of two kinds in their collaborations. First, they are less likely to adapt alliances in the presence of governance misalignments. Second, our sampled small firms were more prone to make transaction-specific investments, which can stimulate ex post hold-up in the form of contractual renegotiations.     

Power as a determinant of executive compensation

Most empirical investigations on the disassociation between executive compensation and firm performance have been done using agency theory. Agency theory alludes to a power imbalance favorable to the executives, allowing them to pursue their self-interests in the form of large pay packages. However, because of its roots in the economic discipline, agency theory has led researchers to test financial rather than behavioral hypotheses. Over 70 years of research has been conducted on the pay-form-performance relationship, but only a few significant relationships have been found. This paper attempts to incorporate behavioral conjectures of power into the agency theory framework to provide a comprehensive approach to testing executive pay. Agency theory is combined with the resource dependency theory and with specific measures of power developed by Finkelstein (1992) for a more complete executive pay model.     

Are long‐term incentive plans an effective and efficient way of motivating senior executives?

Research on senior executive reward has typically explored the connection between pay, performance and the alignment of interests of executives and shareholders. This article examines the relationship between reward and motivation, drawing on the psychological, behavioural economics and decision‐making literatures. Based on an empirical study of FTSE 350 senior executives, the research examines whether long‐term incentive plans are an effective and efficient way of motivating executives, taking into account risk, time discounting, uncertainty and fairness. The article concludes that the way executives frame choices, perceive value, assess probability, evaluate temporal effects and respond to uncertainty means that long‐term incentive plans (LTIPs) are generally not efficient and are often not effective in meeting their objectives. It proposes that, in its current form, agency theory does not provide a sound basis for modelling senior executive reward, and suggests five areas for development.     

Executive pay and performance: the moderating effect of CEO power and governance structure

This paper examines the crucial question of whether chief executive officer (CEO) power and corporate governance (CG) structure can moderate the pay-for-performance sensitivity (PPS) using a large up-to-date South African data-set. Our findings are threefold. First, when direct links between executive pay and performance are examined, we find a positive, but relatively small PPS. Second, our results show that in a context of concentrated ownership and weak board structures; the second-tier agency conflict (director monitoring power and opportunism) is stronger than the first-tier agency problem (CEO power and self-interest). Third, additional analysis suggests that CEO power and CG structure have a moderating effect on the PPS. Specifically, we find that the PPS is higher in firms with more reputable, founding and shareholding CEOs, higher ownership by directors and institutions, and independent nomination and remuneration committees, but lower in firms with larger boards, more powerful and long-tenured CEOs. Overall, our evidence sheds new important theoretical and empirical insights on explaining the PPS with specific focus on the predictions of the optimal contracting and managerial power hypotheses. The findings are generally robust across a raft of econometric models that control for different types of endogeneities, pay, and performance proxies.     

Examining the Relationships Between Monitoring and Incentives in Corporate Governance*

abstract Agency theory focuses on monitoring and incentives as two solutions to agency problems. Prior research suggests that monitoring and incentives may act either as substitutes or as complements, and that the context of the agency relationship plays a major role in determining the direction of the relationship between them. In a corporate governance setting, we contend that board information and boards' usage of CEO control mechanisms are best viewed as complements. Thus, we hypothesize that boards' information gathering behaviour will be positively related to boards' usage of CEO control mechanisms. Using primary and secondary data from 149 US firms, we find that increases in boards' information gathering are associated with increases in boards' usage of managerial controls. These findings suggest that information and managerial control mechanisms act as complements in the governance context, and that boards take a variety of actions to protect the interests of shareholders.     

Agency Theory,Institutional Sensitivity,and Inductive Reasoning: Towards a Legal Perspective

Making agency theory institutionally sensitive is a reasonable suggestion, as far as normal science stands. However, we argue that such a move has already been taking place, that it cannot address important problems with agency theory, and that the time is ripe for a critical re‐examination of this theory. We suggest that inductive studies can not only be more sensitive to institutional features than deductive studies, but they can also offer deeper understanding of governance practices in specific contexts, as well as the potential for analytical or moderatum generalizations. Drawing from legal theory, we offer an alternative conception of the principal, and of the role and status of the board of directors. We contend that this reformulated agency theory has a greater potential of being institutionally sensitive because it recognizes various stakeholders as team members, rather than just adding specific institutional features as variables to the dominant conception of agency theory.     

Expanding the boundaries of buyer-supplier agency problems: Moving from dyad to triad

Extant agency theory addresses dyads consisting of a principal and an agent. It informs us about how to overcome agency problems in the buyer-supplier relationship. In this conceptual paper, we propose a theoretical argument that if we expand the boundary conditions from dyads to triads, we find new solutions to dealing with agency problems. To the buyer-supplier dyad, we add the supplier’s supplier, the buyer’s other supplier, the supplier’s other customer, and the buyer’s customer. As such, we consider four types of triads in supply chains and propose that the buyer as the principal could reframe agency problems with the focal supplier by moving to one of these triads. In particular, we investigate alternative mechanisms that may reduce the level of goal incongruence, information asymmetry, and power asymmetry in the buyer-supplier relationship. Our conceptualization suggests that supply managers should look outside the buyer-supplier dyad for additional opportunities to resolve agency problems.     

Internationalization and Auditor Choice

Prior research shows that internationalization increases information asymmetry and conflicts of interest between managers and outside investors, which lead to greater agency problems. Agency theory predicts a demand for higher quality auditors when agency problems are more severe. This study investigates whether the extent of internationalization influences auditor choice and whether audit quality has performance implications for internationalization. Using a set of U.S. firms from 2003 to 2009, we find the extent of internationalization positively related to audit quality. Furthermore, higher quality audits positively moderate the relation between internationalization and firm performance. Taken together, these results suggest that higher quality audit mitigates the agency problem associated with internationalization.     

Determinants of variable pay for top managers of foreign subsidiaries in Finland

There is a large body of research dealing with top management compensation from an agency theory perspective. Difficulties in monitoring top management (the agent) are exacerbated in the multinational corporation, where there are significant information asymmetries between headquarters and foreign subsidiaries. Headquarters may use variable pay for subsidiary top managers to reduce the agency problems. By studying 110 foreign-owned subsidiaries located in Finland, this paper attempts to identify determinants of variable pay to the subsidiary general manager. In line with agency theory, the results suggest that the roles played by the subsidiary influence the compensation strategy used for the subsidiary general manager. However, while agency theory predicts that the cultural distance beween the home country of the multinational corporation and the location of the foreign subsidiary would have an effect on the compensation system, no such effect was found. Instead, in accordance with the institutionalization perspective, we found a significant 'nationality effect' on the use of variable pay.     

Entrepreneurship and birth order: fact or folklore

Prior research into the birth order of entrepreneurs has supported the commonly held belief that entrepreneurs tend to be first–born children. Traditional birth–order theory and our research question this belief and its supporting research for three fundamental reasons. First, conceptually, birth order does not facilitate the prediction of entrepreneurial tendencies nor does it enable us to influence an individual in the direction of entrepreneurial pursuits, two basic goals of social science theory and research. Second, conclusions from research on entrepreneurs and birth order are inconsistent with and do not support the predictions of traditional birth–order theory. Finally, birth–order research in the area of entrepreneurship has been plagued by poor methodological control of intervening variables such as family size, socio–economic level, and education levels. An empirical test using the necessary methodological controls was conducted. As hypothesized, no relationship was found between entrepreneurship and birth order.     

MANAGERIAL AND OWNERSHIP SUCCESSION AND CORPORATE RESTRUCTURING: THE CASE OF MANAGEMENT BUY-INS*

This paper addresses the effects on corporate restructuring of changing management and ownership. First, it synthesises a number of perspectives on corporate restructuring which involve managerial succession, voluntary restructuring, agency theory, incentives and entrepreneurship, to obtain insights into the relative impact of simultaneously changing either, neither or both management and ownership. Second, it uses case study evidence from management buy-ins to examine the effects of changing both management and ownership. the evidence suggests that whilst management may be adequately incentivized, problems may arise in respect of information asymmetries, difficulties in matching entrepreneurs to the context and monitoring by venture capitalists, and implementation of strategies.     

Friend or foe? Employee ownership and CEO dismissal

This paper examines 2 research questions. First, does the level of employee stock ownership impact the likelihood of dismissing poorly performing chief executive officers (CEOs)? Second, does the level of employee stock ownership affect the likelihood of appointing an outsider or an insider after the dismissal of an incumbent CEO? We suggest that employee stock ownership reinforces the firm performance—CEO dismissal link because employee shareholders' welfare consisting of fixed claims (wages, bonuses, etc.), residual claims (dividends, increase in stock value, etc.), and human capital (generic and idiosyncratic) are highly linked to their firm performance. Moreover, under conditions of poor performance, employee shareholders are likely to favor an outsider CEO because he or she is more likely to initiate and implement drastic changes to the strategy of the firm, and therefore, he or she is more likely to improve firm performance. Drawing on a longitudinal sample of French firms, we find that employee stock ownership strengthens the negative relationship between firm performance and CEO dismissal likelihood. We find also that the higher employee ownership, the more likely that the underperforming CEO is replaced by an outsider. In contrast, employee ownership has no moderating impact on the likelihood of insider CEO appointment.     

Boards of Directors and the Adoption of a CEO Performance Evaluation Process: Agency — and Institutional — Theory Perspectives

Using both agency and institutional theories, we examined factors associated with the board's adoption of a formal process for evaluating the performance of the corporation's chief executive officer (CEO). Our sample was drawn from the hospital industry. Results show that an independent board chairperson, the level of market competition and the degree of managed care penetration were significant predictors of whether or not the board had adopted a formal CEO evaluation process. These findings imply that initiatives to improve governance effectiveness based on agency theory should take into account the institutional environment of corporate boards.