Firm performance,corporate governance and executive compensation in Pakistan

This study examines the effects of firm performance and corporate governance on chief executive officer (CEO) compensation in an emerging market, Pakistan. Using a more robust Generalized Method of Moments (GMM) estimation approach for a sample of non-financial firms listed at Karachi Stock Exchange over the period 2005–2012, we find that both current- and previous-year accounting performances has positive influence on CEO compensation. However, stock market performance does not appear to have a positive impact on executive compensation. We further find that ownership concentration is positively related with CEO compensation, indicating some kind of collusion between management and largest shareholder to get personal benefits. Inconsistent with agency theory, CEO duality appears to have a negative influence, while board size and board independence have no convincing relationship with CEO compensation, indicating board ineffectiveness in reducing CEO entrenchment. The results of dynamic GMM model suggest that CEO pay is highly persistent and takes time to adjust to long-run equilibrium.     

Newer compensation practices for the nurse executive

Today's health care leaders must be prepared differently and have a different set of expectations in their roles. More creative approaches to assuring both commitment and productivity, such as tying rewards to performance and personal accomplishment, are emerging.     

Selecting suitable compensation plans of executive stock options

Theoretical and empirical works have emphasized that executive stock option plans play an important role in compensation management and corporate governance owing to the incentives to increase firm stock price and volatility levels. This study not only proposes models of executive stock options and constructs value-matched financial variables for comparing the incentive effects towards these options, but also develops an empirical study exploring the characteristics of executive stock options and suitable compensation management for companies. This investigation examines the daily value and compares incentive effects of six kinds of executive stock options with the empirical data of TSMC, the world's largest dedicated semiconductor foundry, which is listed on the TSE and NYSE. Empirical results indicate that purchased options would be the best choice for companies that are unsuitable to undertake risky investments, while the relative indexed options are appropriate for bear markets and good for companies whose executives are highly risk averse. Repriceable options are not recommended due to their high costs and weak incentive effects.     

Optimal executive compensation: Stock options or restricted stocks

This paper develops an agency model to analyze the optimality of executive stock option compensation in the presence of information manipulation. The analyses show that although information manipulation is positively related to the size of option compensation, the relative size of manipulation-to-effort does not depend on the size of option compensation. Furthermore, an optimal executive compensation package includes stock options instead of restricted stocks under most circumstances. Testable predictions on the relationship between optimal option exercise price and exogenous model parameters are derived.     

高管报酬激励与企业绩效——来自中国上市公司的证据

本文利用我国上市公司高管人员报酬数据及财务数据,分析了上市公司高管人员的报酬现状及其报酬绩效联系.我们发现,上市公司高管报酬的变化与当年的会计绩效显著正相关,但与会计绩效的变化之间的关系不稳定,上市公司股东价值每增加100万元,高管平均报酬仅增加3.8元;上市公司市场异常收益率每增加10%,高管平均报酬增加1.58%.不同性质和规模的公司报酬绩效联系不同.     

Shareholder wealth responses to European legislation on bank executive compensation

This paper uses an event study approach to investigate the shareholder wealth responses to European legislation on bank executive compensation. Using a sample of 124 banks over 2009–2010 and over 20 legislative and related events, we find that in early stages bank shareholders react positively to broad discussion at the EU level on executive pay. When plans to regulate the pay process are considered, however, this results in a negative stockholder reaction. We also find that large bank shareholders are most affected by remuneration policy.     

Influence of firm performance and gender on CEO compensation

In this article we continue the examination of top executive pay by comparing performance, total pay and the influence of CEO gender. We analyse compensation differences between male and female CEOs using nonparametric analysis. We calculate the potential compensation for each executive using two benchmarks. First, each executive's performance and compensation are evaluated relative to members of the same gender to produce a same-gender measure of under-compensation. Each executive's compensation is also benchmarked against the other gender's potential compensation, producing an other-gender measure of under-compensation. Together, both measures allow an analysis of the gender-specific potential salaries of each executive while controlling for performance. The approach is applied to a sample of male and female executives. The results indicate that women are under-compensated.     

The asymmetric relationship between executive earnings management and compensation: a panel threshold regression approach

Prior research shows that chief executive officers (CEOs) are rewarded for their earnings management. We re-examine this issue using a panel threshold regression approach, which allows the effect of earnings management on the CEO compensation to change across the level of earnings management and CEO compensation. Our results show that the effect of CEOs’ discretionary accounting choices on their compensation is not homogeneous across various degrees of earnings management and compensation. In particular, for firms with moderate (inordinate) levels of earnings management and CEO compensation, earnings management is rewarded (penalized).     

Partisanship and the effectiveness of oversight

We examine the welfare effects of partisanship in a model of checks and balances. An executive makes a policy proposal and an overseer then decides whether or not to veto the executive's proposal. Both the executive and the overseer have private information as to the correct policy to pursue, and both are motivated by the desire to appear competent. A partisan overseer is one who, in addition to seeking to promote her own reputation, cares how her decision will impact the executive's reputation. Our main result is that partisanship can improve the efficacy of an oversight regime, as the distortions caused by a partisan overseer's desire to affect the executive's reputation can offset the distortions caused by her desire to enhance her own. Our results provide a new rationale for divided government, as partisan considerations are often necessary to prevent the overseer from rubber stamping all executive proposals.     

Pay for performance: motivating the chief nurse executive

A recent membership survey of the Association of Nurse Executives indicates that an increasing number of nurse executives are receiving bonus compensation based upon the criteria of budget performance, patient satisfaction, and relations with physicians and nurses.     

The impact of incentives on CEO compensation and firm performance

A significant component of a management control system is the incentive mechanism and motivational underpinning of compensation contracts. Most executives are rewarded in the form of cash and company stock. Our data indicate that over 82.5 percent of the observations include a bonus pay to CEOs and an even larger percentage, about 94.5 percent, have stock option grants. Our analyses indicate that the means of market-based returns are significantly larger for companies with no stock option incentives. However, the accounting-based returns do not appear to be significantly influenced by stock-based rewards. (JEL: J30, G30, L21)     

Self-regulation and governmental oversight: a theoretical and experimental study

Journal of Regulatory Economics - A self-regulatory organization (SRO) is a non-governmental organization owned and operated by its members, with the power to create and enforce industry...     

Tenure,promotion and executive remuneration

Commentators frequently remark on the need to pay high levels of chief executive officer remuneration to attract, motivate and retain the best executives for Britain's leading companies. This paper presents the results of an empirical investigation into tenure, promotion and executive remuneration. The remuneration of the chief executive officers at some of Britain's largest businesses is examined. In the majority of cases the CEO had not been lured away from rivals but had risen through the internal labour market, often after a long–term employment relationship. Moreover, long job tenure and internal promotion were associated with higher levels of pay. It is concluded that understanding of this controversial issue will be improved if it is recognized that a part of current executive pay may be a reward for previous successful performance.     

Making executive politics mutually productive and fair

Winner-take-all elections for executive offices create high-stakes electoral conflict that distorts policy-making and constitution-making behavior. When the stakes are high, so long as it increases the chances of victory, office-seekers seek to shift perceived benefits toward and burdens away from potentially pivotal participants. This can entail the strategic allocation of spoils, the strategic selection of public policies that mobilize one’s base or divide the opposition, the strategic shifting of benefits into the present and costs into the future, and the strategic deception of the uninformed. This paper proposes a “turn-taking institution,” an electoral system in which the whole term is only awarded to a sufficiently inclusive supermajority coalition; if no coalition qualifies, the plurality winner and the runner-up take alternating one-year turns for the length of the term. This institution lowers the stakes of electoral conflict by roughly an order of magnitude, and fosters the formation, enforcement and adaptation of mutually productive policy-making and constitution-making behaviors. Critically, these results hold up even when voters and policy-makers are impatient, and when only short-run commitments are possible.     

Incentive-compatible compensation and regulation

This article uses contingent claims analysis and regulatory constraints to show how a bank can create incentive-compatible compensation for the senior management aligned with the interests of the other stakeholders. For this purpose, the remuneration package takes the form of a ‘call spread’ on the bank’s equity. Unlike regular stock option programmes, a call spread limits the upside potential for the senior management. This prevents unlimited risk taking. Additionally, a maximum regulatory default probability also constrains risk-taking behaviour. We show under which parameterizations the remuneration package and the regulatory constraint offer equal incentives for the senior management.     

When two tribes go to work: Board political diversity and firm performance

A substantial literature has studied how increased diversity in terms of gender, age, education, and race amongst members of firms' boards affects decisions and performance. This paper studies whether ideological diversity in the boardroom affects firm performance. We find that whilst a board with a broader range of political opinions and beliefs is correlated with better performance ceteris paribus, that the causal impact of such an increase in diversity is negative and substantial. This negative effect is still present when diversity is measured excluding top management, and when diversity is defined in terms of the difference between firms' management and non-executive directors. In conclusion we consider the implication of these findings given the recent growth in both political polarization and ideological segregation.     

Revenue decentralization,central oversight and the political budget cycle: Evidence from Israel

This paper examines whether revenue decentralization and direct external financial supervision affect the incidence and strength of political budget cycles, using a panel of Israeli municipalities during the period 1999–2009. We find that high dependence on central government transfers – as reflected in a low share of locally raised revenues in the municipality's budget – exacerbates political budget cycles, while tight monitoring – exercised through central government appointment of external accountants to debt accumulating municipalities – eliminates them. We also find that this pattern is predominantly accounted for by development expenditures. These results suggest that political budget cycles can result from fiscal institutions that create soft budget constraints: that is, where incumbents and rational voters can expect that the costs of pre-election expansions will be partly covered later by the central government.     

The limit of oversight in policing: Evidence from the 2001 Cincinnati riot

Oversight in policing involves investigating officers for complaints against them and punishing them if found guilty. Officers commit errors in policing and, since reducing the error rate is costly, they cut down policing to avoid complaints. This paper tests the hypothesis that oversight reduces policing by exploiting a quasi-experiment: In April 2001, a riot erupted in Cincinnati after a white officer shot dead an unarmed African-American adolescent; the sharply increased media attention, a Justice Department investigation, together with a “racial profiling” lawsuit, exogenously raised the expected penalty of an officer's errors. Compared with the period from January 1999 to March 2001, arrests during the remaining months of 2001 fell substantially. The decline was more significant for offenses where the error rate was higher. Communities with a greater percentage of African-Americans experienced greater arrest reductions. Felony crime surged during the same period.