Gender‐Compensation Differences Among High‐Level Executives in the United States

Bertrand and Hallock (2001: 3) present compelling evidence that female executives in the United States earned 45 percent less total compensation than their male counterparts for 1992–1997. We complement their results by analyzing data over a longer time period and, more importantly, contend that most of the unexplained gender difference in total pay among executives was due to gender differences in the portion of variable pay, in particular a different cash payout from stock option exercises.     

CEO political ideologies and pay egalitarianism within top management teams

Research summary : We examine the influence of CEO and compensation committee liberalism on top management teams (TMT ) pay arrangements. Given that politically liberal individuals tend to value egalitarianism, we test whether firms with liberal CEO s tend to (1) reduce pay dispersion among non‐CEO executives; and (2) reduce pay gaps between CEO and non‐CEO executives, and whether compensation committee liberalism moderates these relationships. We find some evidence of a direct effect of CEO liberalism on TMT pay arrangements as well as some interaction between CEO and compensation committee liberalism on the pay arrangements. This study provides a better understanding of the antecedents of TMT pay arrangements and empirical evidence showing the influence of values at the top of organization . Managerial summary : Do the values of the CEO and compensation committee influence the pay of other top managers? Our study provides evidence that political ideology affects top manager pay. We examine whether CEO liberalism produces more egalitarian pay arrangements among top managers, and whether the liberalism of the compensation committee affects that relationship. We find that CEO liberalism reduces differences in the total pay among top managers, but does not influence the difference between CEO total pay and the total pay of top managers. We also find that compensation committee liberalism strengthens the negative influence of CEO liberalism on differences in total pay among top managers. Finally, we find that CEO liberalism reduces the difference between CEO bonus pay and the bonus pay of other top managers . Copyright © 2016 John Wiley & Sons, Ltd.     

UK Executive Bonuses and Transparency — A Research Note

High levels of executive pay in the USA and the UK have attracted journalistic and academic criticism to the effect that they constitute rent extraction by self‐interested executives rather than rewards for raising shareholder returns. The focus of most criticism has been on salary, severance payments and various long‐term incentives (particularly share options). However, executive bonuses have attracted little attention and have been only lightly regulated. This raises important questions. Has lighter regulation been associated with significant levels of rent extraction through bonuses, that is, a weak relation between bonus pay and shareholder returns? Have more transparent performance conditions attached to bonuses strengthened the relation, making rent extraction more difficult, or have they acted as camouflage for rent extraction, associated with higher bonus pay but lower pay‐performance responsiveness? Are measures of CEO power associated with larger bonuses? This empirical note provides the first, preliminary answers to these questions.     

A model of person‐pay interaction: how executives vary in their responses to compensation arrangements

A wealth of research indicates that both executive characteristics and incentive compensation affect organizational outcomes, but the literatures within these two domains have followed distinct, separate paths. Our paper provides a framework for integrating these two perspectives. We introduce a new model that specifies how executive characteristics and incentives operate in tandem to influence strategic decisions and firm performance. We then illustrate our model by portraying how executive characteristics interact with a specific type of pay instrument—stock options—to affect executive behaviors and organizational outcomes. Focusing on three individual‐level attributes (executive motives and drives, cognitive frame, and self‐confidence), we develop propositions detailing how executives will vary in their risk‐taking behaviors in response to stock options. We further argue that stock options will amplify the implications of executive ability, such that option‐heavy incentive schemes will increase the performance of talented executives but worsen the performance of low‐ability executives. Our framework and propositions are meant to provide a starting point for future theorizing and empirical testing of the interactive effects of executive characteristics and incentive compensation on strategic decisions and organizational performance. Copyright © 2010 John Wiley & Sons, Ltd.     

Executive Mobility and Minority Status

We examine the mobility of minority executives, defined as ethnic minority and female executives, in publicly listed U.S. firms. Minority executives as a whole experience lower promotion, higher demotion, and higher exit than Caucasian males. Female and African American executives account for the majority of these differences. Specifically, female executives experience lower promotion and exit, while African Americans experience lower promotion, higher demotion, and higher exit. In contrast, Asian and Hispanic executives do not experience different mobility outcomes from Caucasian executives.     

Leveraging foreign institutional logic in the adoption of stock option pay among Japanese firms

Research summary : We investigate why Japanese firms have adopted executive stock option pay, which was developed with shareholder‐oriented institutional logic that was inconsistent with Japanese stakeholder‐oriented institutional logic. We argue that Japanese managers have self‐serving incentives to leverage stock ownership of foreign investors and their associated institutional logic to legitimize the adoption of stock option pay. Our empirical analyses with a large sample of Japanese firms between 1997 and 2007 show that when managers have elite education, high pay inequality with ordinary employees, and when firms experience poor sales growth, foreign ownership is more likely associated with the adoption of stock option pay. The study shows the active role of managers in facilitating the diffusion of a new governance practice embodying new institutional logic. Managerial summary : Why have Japanese firms adopted stock option pay for executives? Inconsistent with Japanese stakeholder‐oriented tradition in corporate governance, such pay has been believed to prioritize managerial attention to the interests of shareholders over those of other stakeholders. However, to the extent that shareholders' interests are legitimate in the Japanese context, executives who have self‐serving incentives to adopt such pay can leverage the need to look after shareholders' interest in their firms to legitimize their decisions. In a large sample of Japanese firms, we find that foreign ownership (representing shareholders' interests) is more likely to be associated with the adoption of stock option pay when managers are motivated to receive such pay, such as when they have elite education, high pay inequality with ordinary employees, or poor sales growth. Copyright © 2015 John Wiley & Sons, Ltd.     

Sharing the wealth: social comparisons and pay dispersion in the CEO's top team

The antecedents and consequences of pay dispersion are studied using theory that focuses on the social comparisons that occur among members of the CEO's top team. Results from a sample of large public firms indicate that when members of this elite group were similar on a variety of dimensions, and thus likely to compare their pay, the board allowed less dispersion. In addition, pay dispersion was negatively related to company performance, particularly when it exceeded what could be justified by characteristics of the industry, firm, or team. But the strength of that relationship depended on how uniformly members of the team would benefit from subsequent performance gains. Specifically, the negative effect was particularly strong in firms where major differences in compensation—that is, some executives were given significantly more stock options—combined with a volatile stock price to provide only a few team members with the opportunity to realize very large financial gains in the future. The study demonstrates that the social‐psychological factors that affect comparisons among members of the CEO's top team impact the board's pay setting process, which in turn affects pay dispersion, and ultimately firm performance. Copyright © 2010 John Wiley & Sons, Ltd.     

Executive compensation and firm performance in Italy

We use survey data to investigate the determinants of executive pay in a sample of Italian firms. To the best of our knowledge this is the first empirical study on the compensation of Italian executives. Our key hypothesis is that the characteristics of the Italian capital market, corporate governance and the specific relationship between banks and firms imply a low fraction of incentive pay over total compensation and a low sensitivity of incentive pay to firm performance. We find evidence that supports this hypothesis. We estimate that an increase of real profits per firm by 1 billion lire increases the pay of upper and middle managers by only 31 thousand lire, more than the increase found for lower management (6 thousand). Furthermore, pay–performance sensitivity is higher in foreign-owned firms, in listed firms, and in firms affiliated to a multinational group.     

The Effects of Non‐Expensed Employee Stock Bonus on Firm Performance: Evidence from Taiwanese High‐Tech Firms

The choice of whether to expense broad‐based stock incentives has been a highly controversial debate in both academic research and practice circles. We provide insightful findings to reconcile certain debates regarding the effectiveness of non‐expensed, broad‐based stock incentives. Using a unique longitudinal dataset from Taiwanese high‐tech firms over the 1997–2008 period, our results indicate that non‐expensed employee stock bonus incentives exerted positive effects on short‐term organizational value added creation. The dilution effects of broad‐based stock incentives in Taiwan, however, exerted a negative influence on profitability and eroded share return. The negative effects were even more severe in the following year, and overexploitation of employee stock bonus also damaged the long‐term organizational performance of Taiwanese high‐tech firms. This negative aspect of non‐expensed employee stock incentives resulted in more evidence for changing the regulatory context of broad‐based stock incentives in Taiwan.     

Top management incentive compensation and knowledge sharing in multinational corporations

Growing interest has emerged in viewing the multinational corporation as a knowledge creating and diffusing entity. The importance of sharing knowledge across organizational and national boundaries has been established in previous research. However, the question of which organizational policies lead to knowledge sharing between multinational units is still not fully understood. In particular, the link between compensation mechanisms and knowledge sharing has not received attention in previous studies. By studying 164 foreign‐owned subsidiaries located in Finland and China, this article attempts to identify the relationship between subsidiary bonus pay based on MNC‐wide performance and knowledge sharing between different units of the MNC. In line with the knowledge‐based perspective of the firm, the results suggest that incentive pay based on the collective performance of the MNC leads to greater knowledge sharing. Copyright © 2008 John Wiley & Sons, Ltd.     

Does a long‐term orientation create value? Evidence from a regression discontinuity

Research summary : In this paper, we theorize and empirically investigate how a long‐term orientation impacts firm value. To study this relationship, we exploit exogenous changes in executives' long‐term incentives. Specifically, we examine shareholder proposals on long‐term executive compensation that pass or fail by a small margin of votes. The passage of such “close call” proposals is akin to a random assignment of long‐term incentives and hence provides a clean causal estimate. We find that the adoption of such proposals leads to (1) an increase in firm value and operating performance—suggesting that a long‐term orientation is beneficial to companies—and (2) an increase in firms' investments in long‐term strategies such as innovation and stakeholder relationships. Overall, our results are consistent with a “time‐based” agency conflict between shareholders and managers. Managerial summary : This paper shows that corporate short‐termism is hampering business success. We show clear, causal evidence that imposing long‐term incentives on executives—in the form of long‐term executive compensation—improves business performance. Long‐term executive compensation includes restricted stocks, restricted stock options, and long‐term incentive plans. Firms that adopted shareholder resolutions on long‐term compensation experienced a significant increase in their stock price. This stock price increase foreshadowed an increase in operating profits that materialized after two years. We unpack the reasons for these improvements in performance, and find that firms that adopted these shareholder resolutions made more investments in R&D and stakeholder engagement, especially pertaining to employees and the natural environment. Copyright © 2016 John Wiley & Sons, Ltd.     

Equity‐based incentives and collaboration in the modern multibusiness firm

Research summary : This paper examines the role of equity‐based incentives in fostering cross‐business‐unit collaboration in multibusiness firms. We develop a formal agency model in which headquarters offers equity and profit incentives to business‐unit managers with the objective of maximizing total expected firm returns. The resulting compensation contract provides a rich mechanism for aggregating value from collaborative interactions across business units, aligning managers' efforts with the firm's growth prospects and organization structure and managing the dual risks in profits and firm market value. The inclusion of equity incentives elicits higher levels of own‐unit and collaborative efforts over the profits‐only contract. Our results suggest that equity‐based incentives are most beneficial when profitability is uncertain relative to long‐term growth prospects, in firms pursuing related diversification strategies, and in periods of rising equity markets. Managerial summary : Equity‐based compensation such as restricted stock grants and options are increasingly common, not only for CEOs and other top executives, but also for business unit managers and other non‐C‐suite employees. The paper studies the role of such “global” incentives in enabling multibusiness firms to benefit from cross‐unit collaboration. Results from our model show that managerial contracts that include appropriate levels of equity incentives, in addition to profit‐based incentives, generate higher own‐unit and collaborative efforts. We also find that equity incentives are likely to be most beneficial for large firms in high‐growth sectors, for firms pursuing a related diversification strategy, and in periods of rising stock markets. The model can also provide useful guidance on designing return‐maximizing compensation contracts for business unit managers in different firm, organizational, and industry contexts. Copyright © 2015 John Wiley & Sons, Ltd.     

Matching compensation and organizational strategies

This study examines the impact of organizational strategies (at both the corporate and business unit level) on pay strategies, and their interactive influence on the effectiveness of the compensation system. The empirical findings are based on the survey responses of 192 human resource management executives in business units of large manufacturing firms. Corporate strategy was a significant predictor of pay package design, pay level relative to the market, and pay administration policies. Business unit strategy was a significant predictor of pay package design and pay level relative to the market. The findings are supportive of congruency notions which suggest that the effectiveness of the compensation system is partly a function of the fit between pay strategies and organizational strategies.     

Informativeness of performance measures and Chinese executive compensation

We provide evidence on the use of accounting versus stock market performance measures as determinants of Chinese top managers’ compensation over 2001–2007. We theorize and find that (1) accounting returns are weighted more heavily in general than stock returns in determining top executive compensation, (2) state-owned enterprises (SOEs) rely significantly less on stock market returns than do non-SOEs, (3) firms located in high marketization regions rely more heavily on stock market returns to reward managers, and (4) firms with better internal governance quality rely more on stock returns to reward executives. We discuss our findings with particular reference to the Chinese context of our research.     

Chief executive compensation: A study of the intersection of markets and political processes

A model of the determinants of chief executive (CEO) compensation is presented and tested. Based on a sample from the leisure industry, the study finds that CEO pay has complex links to several factors: firm size, complexity, performance, CEO power, board vigilance, and the CEO's human capital. The study includes a separate examination of CEO salary and bonus, as well as a test of pay determination across McEachern's (1975) ownership categories.     

Corporate tournaments and executive compensation: Evidence from the U.K.

This study tests the implications of tournament theory using data on 100 U.K. stock market companies, covering over 500 individual executives, in the late 1990s. Our results provide some evidence consistent with the operation of tournament mechanisms within the U.K. business context. Firstly, we find a convex relationship between executive pay and organizational level and secondly, that the gap between CEO pay and other board executives (i.e., tournament prize) is positively related to the number of participants in the tournament. However, we also show that the variation in executive team pay has little role in determining company performance. Copyright © 2001 John Wiley & Sons, Ltd.     

Who gets the carrot and who gets the stick? Evidence of gender disparities in executive remuneration

This paper offers a new explanation of the gender pay gap in leadership positions by examining the relationship between managerial bonuses and company performance. Drawing on findings of gender studies, agency theory, and the leadership literature, we argue that the gender pay gap is a context‐specific phenomenon that results partly from the fact that company performance has a moderating impact on pay inequalities. Employing a matched sample of 192 female and male executive directors of U.K.‐listed firms, we corroborate the existence of the gender pay disparities in corporate boardrooms. In line with our theoretical predictions, we find that bonuses awarded to men are not only larger than those allocated to women, but also that managerial compensation of male executive directors is much more performance‐sensitive than that of female executives. The contribution of attributional and expectancy‐related dynamics to these patterns is highlighted in line with previous work on gender stereotypes and implicit leadership theories such as the romance of leadership. Gender differences in risk taking and confidence are also considered as potential explanations for the observed pay disparities. The implications of organizations' indifference to women's performance are examined in relation to issues surrounding the recognition and retention of female talent. Copyright © 2010 John Wiley & Sons, Ltd.     

Compensation strategy: does business strategy influence compensation in high‐technology firms?

Drawing on the strategic employee group concept, this study empirically examines whether a firm's innovation strategy influences compensation systems for strategic employee groups in the high‐technology industry. We focus on compensation packages for R&D employees who play a critical role in successful implementations of innovation strategy. Using compensation data for middle‐level managers and professional employees from 237 firms in the high‐technology industry, we found that a firm's strategic intention to pursue innovation has a significant influence on the relative pay level, compensation time horizon, and stock option vesting period lengths of this strategic employee group. Copyright © 2006 John Wiley & Sons, Ltd.     

Specificity of CEO human capital and compensation

Much research on top management compensation has focused on the relationship between pay and firm performance. Firms, however, may compensate executives for inputs such as skills, as well as for outputs such as firm performance. This study refocuses attention on the links between managerial abilities and compensation by examining pay differences between types of CEO successors who have differential skills—namely, internal and external successors. © 1997 John Wiley & Sons, Ltd.     

经理人股票期权价值的理论及应用

股票期权激励的研究和实践中广泛应用布莱克——斯科尔斯模型进行股票期权的公允价值计价,然而对经理人而言的股票期权价值还要考虑经理人的风险偏好、财富的多元化程度等因素的影响。经理人期权价值不等于公司期权成本的基本理论可以解决及解释在股票期权实践中的一些关键性问题,如期权激励有效性的衡量、激励期权的风险溢价、最优行权价的确定、行权时间的确定。该理论的应用对我国上市公司股权激励的实施也有重要启示。