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Article
Publication date: 11 April 2008

Nina T. Dorata and Steven T. Petra

This study seeks to examine whether CEO duality further exacerbates CEOs' motivation of self‐interest to engage in mergers and acquisitions to increase their compensation.

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Abstract

Purpose

This study seeks to examine whether CEO duality further exacerbates CEOs' motivation of self‐interest to engage in mergers and acquisitions to increase their compensation.

Design/methodology/approach

Regression tests using CEO compensation as the dependent variable, and CEO duality, firm size and firm performance as independent test and control variables. The regression tests are used for various sub‐samples of the firms, those that merge and those that have CEO duality.

Findings

The results indicate that for merging firms CEO compensation is positively associated with firm size. However, this association is unaffected by CEO duality. For non‐merging firms, the results indicate that CEO compensation is positively associated with firm size and firm performance. CEO duality moderates the positive association between CEO compensation and firm performance.

Research limitations/implications

This study is limited to the extent that it does not observe the deliberations of compensation committees in their setting of CEO compensation, but only examines the outcomes of those deliberations. A future area of research is to examine compensation schemes of merger/acquisition CEOs in the context of other government structures, such as board independence and composition.

Practical implications

Shareholders who desire to keep CEO compensation levels positively associated with firm performance may consider supporting the separation of the positions of CEO and Chairperson of the Board.

Originality/value

This study contributes to the literature by concluding that governance structure influences CEO compensation schemes and CEOs of merging firms command higher compensation in spite of governance structure and firm performance.

Details

Managerial Finance, vol. 34 no. 5
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 June 1997

Yu Hsing and Wen‐Jeng Lin

CEOs' compensation has received a great deal of attention in recent years. Some criticised that CEOs' compensation is not responsive to their performance, because some CEOs

Abstract

CEOs' compensation has received a great deal of attention in recent years. Some criticised that CEOs' compensation is not responsive to their performance, because some CEOs still received the same or more compensation even if their companies incurred losses. Others complained that the compensation received by some of the CEOs was so astronomical that it can not be justified with any rational explanations. Many also maintained that some CEOs do not care about employees' wellbeing and shareholders' interest in the determination of their compensation in view of the facts that many workers received pay cuts or declining compensation in real terms and are laid off in the re‐structuring of organisations in order for firms to become more competitive domestically and worldwide.

Details

Management Research News, vol. 20 no. 6
Type: Research Article
ISSN: 0140-9174

Article
Publication date: 1 February 1995

Richard H. Fosberg and Joe F. James

Jensen and Murphy (1990) and others have found a small but statistically significant relationship between firm performance (as measured by change in shareholder wealth or…

Abstract

Jensen and Murphy (1990) and others have found a small but statistically significant relationship between firm performance (as measured by change in shareholder wealth or firm profits) and executive compensation. In this study we investigate the pay‐ performance relationship further by considering the relationship between an outside measure of firm performance (changes in the firm's bond rating) and the contemporaneous change in the compensation of the firm's CEO. We find that when a firm's bond rating is down‐graded, CEO total compensation declines by a relatively small amount ($165,500) and when a firm's bond rating is upgraded, CEO total compensation increases markedly ($3,202,900). Thus, while a positive pay‐performance relationship exists, the relationship is not symmetric. CEO compensation changes (increases) much more when firm performance improves than it changes (decreases) when firm performance declines. Further, most of the change in CEO compensation occurs in the stock gains (profits from the exercise of stock options) category for both firms experiencing bond rating upgrades and down‐grades.

Details

Managerial Finance, vol. 21 no. 2
Type: Research Article
ISSN: 0307-4358

Abstract

Details

The Theory and Practice of Directors’ Remuneration
Type: Book
ISBN: 978-1-78560-683-0

Article
Publication date: 1 December 2003

Peter A. Stanwick and Sarah D. Stanwick

This study examines the relationship between ethical reputation, CEO compensation and firm performance for the top corporate citizens as rated by Business Ethics magazine…

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Abstract

This study examines the relationship between ethical reputation, CEO compensation and firm performance for the top corporate citizens as rated by Business Ethics magazine. The results show that there was not a direct relationship between CEO compensation and firm performance, that a high level of CEO compensation combined with a high ethical reputation did not impact the financial performance of the firm, and firms with a high ethical reputation had only average financial results, while firms with low ethical reputations displayed both high and low financial performance. Furthermore, CEOs of unfirms had, on average, higher compensation levels than firms that were profitable. These findings bring useful inputs for CEO on how they can justify high levels of compensation even during periods when the firm is not profitable or has a low level of profitability. An interesting sidelight of the study is that three CEOs in the sample whose firms were profitable did not accept any compensation during 2002, probably because the financial performance was below expectations.

Details

Management Decision, vol. 41 no. 10
Type: Research Article
ISSN: 0025-1747

Keywords

Book part
Publication date: 30 March 2017

John S. Howe and Scott O’Brien

We examine the use of relative performance evaluation (RPE), asymmetry in pay for skill/luck, and compensation benchmarking for a sample of firms involved in a spinoff…

Abstract

We examine the use of relative performance evaluation (RPE), asymmetry in pay for skill/luck, and compensation benchmarking for a sample of firms involved in a spinoff. The spinoff affects firm characteristics that influence the use of the identified compensation practices. We test for differences in the compensation practices for the pre- and post-spinoff firms. We find that RPE is used for post-spinoff CEOs, but not pre-spinoff CEOs. Post-spinoff CEOs are also paid asymmetrically for luck where they are rewarded for good luck but not punished for bad luck. Both pre- and post-spinoff CEOs receive similar levels of compensation benchmarking. The study provides additional evidence on factors that influence compensation practices. Our spinoff sample allows us to examine how compensation practices are affected by changes in firm characteristics while keeping other determinants of compensation constant (i.e., the board and, in many cases, the CEO). Our findings contribute to the understanding of how the identified compensation practices are used.

Details

Global Corporate Governance
Type: Book
ISBN: 978-1-78635-165-4

Keywords

Article
Publication date: 11 March 2022

Aisha Khursheed and Nadeem Ahmed Sheikh

The purpose of this paper is to investigate the impact of firm-specific (i.e. firm size, profitability, leverage, dividend, growth opportunities, management quality and…

Abstract

Purpose

The purpose of this paper is to investigate the impact of firm-specific (i.e. firm size, profitability, leverage, dividend, growth opportunities, management quality and firm age) and country-specific (i.e., gross domestic product [GDP] growth) variables on compensation/remuneration offered to chief executive officers (CEOs) working in different industries of Pakistan.

Design/methodology/approach

Panel data techniques, namely, pooled ordinary least squares, fixed effects and random effects methods are used to estimate the results. Moreover, Hausman test is used to choose which estimation method, either fixed effects or random effects, is better to explain the results.

Findings

Firm size, profitability, leverage, growth opportunities and age are some important firm-specific factors that have mixed (i.e. positive/negative) impact on CEO compensation in different industries. Variations in results are due to industry dynamics. However, it is important to mention that three key variables, namely, dividend, management quality and GDP growth have shown consistent positive impact on CEO compensation in most of the industries. In sum, results show that firm-specific and country-specific variables have material effects on CEO compensation. Moreover, results are found consistent with the predictions of agency theory and human capital theory.

Practical implications

The authors are sure that findings of this study provide some support to the board of directors to determine the pay slice for CEOs. Moreover, findings provide support to the regulatory authorities in formulating mechanisms to determine the compensation package for CEOs working in different industries and to improve the Code of Corporate Governance.

Originality/value

To the best of the authors’ knowledge, no empirical study in Pakistan has yet estimated the effects of firm-specific and country-specific variables on compensation offered to CEOs working in different industries. Thus, industry-wise analysis provides some new insights to the decision-makers and lays some foundation upon which a more detail analysis could be based.

Details

Corporate Governance: The International Journal of Business in Society, vol. 22 no. 6
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 24 August 2021

Mehtap Aldogan Eklund

The purpose of this study is to examine whether chief executive officer (CEOs) are paid for the systematic and/or unsystematic risks and whether there is any optimum risk…

Abstract

Purpose

The purpose of this study is to examine whether chief executive officer (CEOs) are paid for the systematic and/or unsystematic risks and whether there is any optimum risk premium level in the executive pay.

Design/methodology/approach

Firm and year fixed effect panel data regression was used to estimate the relationship between total CEO compensation and systematic (market) and unsystematic (firm) risks.

Findings

There is no nexus between CEO pay and unsystematic (diversifiable) risk; however, the association between CEO compensation and systematic (undiversifiable) risk is positively significant in line with agency theory. Moreover, it is revealed that this positive relationship has an optimum point (curvilinear).

Research limitations/implications

This paper contributes to the controversial argument in the literature by investigating the situation in the Swiss market. Switzerland is an exemplary country because of its direct democracy (consensus) structure for executive pay. This study is limited by the fact that only total CEO compensation is analyzed.

Practical implications

As a practical implication, it is shown that after the optimal point, the higher compensation does not motivate the CEOs to take higher risks and does not provide the organizations with any additional benefit.

Originality/value

The finding of this study supports agency theory’s risk premium assumption and provides additional evidence to the contradictory results in the literature with a new country setting that has paramount importance in executive compensation phenomena. It is a comparative finding with prior literature also outlines the future research area in the risk and compensation literature.

Details

Corporate Governance: The International Journal of Business in Society, vol. 22 no. 1
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 23 September 2013

Lerong He and Hong Wan

The purpose of this paper is to examine the relationship between IPO lockups and founder-CEOscompensation and incentives in newly public firms. The paper argues that…

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Abstract

Purpose

The purpose of this paper is to examine the relationship between IPO lockups and founder-CEOscompensation and incentives in newly public firms. The paper argues that existence and length of lockup agreements are affected by bargaining power of founders, which will consequently influence the determination of their compensation contracts.

Design/methodology/approach

Multivariate tests are constructed to examine the relationship between IPO lockups and executive compensation. OLS, fixed-effect panel data model, and the Heckman two-stage model are all utilized to conduct the tests.

Findings

The study finds that lockup existence and lockup length are negatively related to founder-CEOs’ total compensation and positively related to founder-CEOs’ equity incentives. The results hold after controlling for the endogenous decision to sign a lockup agreement at the IPO.

Research limitation/implications

The paper's results suggest that the power of founders and other insiders is a crucial factor in the lockup determination process besides economic factors identified in previous studies. The paper's results also echo the political power theory in the management literature which suggests that an organization's decision making is heavily influenced by relative power of organizational members and reflects their preference.

Originality/value

The paper raises a new explanation for the determinant of IPO lockups that supplements the extant theories. The paper argues that existence and length of lockup agreements could be affected by bargaining power of insiders.

Details

International Journal of Managerial Finance, vol. 9 no. 4
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 6 April 2018

Reilly White

The purpose of this paper is to investigate how the structure of both CEO and non-CEO executive compensation affects the overall risk of a firm. The author focuses on the…

Abstract

Purpose

The purpose of this paper is to investigate how the structure of both CEO and non-CEO executive compensation affects the overall risk of a firm. The author focuses on the interplay between CEO and non-CEO executive compensation structure.

Design/methodology/approach

The author uses a hand-collected pension-database that employs both OLS and two-stage least squares regressions to determine the effects of inside debt on default risk using the distance-to-default framework. The database consists of 8,965 executive-year data points from 272 firms.

Findings

This paper accomplishes three major objectives: first, the author presents a significant extension of Sundaram and Yermack (2007) by including non-CEO executives; the author demonstrates how the differences in inside debt between CEO and non-CEO executives are directly related to firm risk; and that funding these pensions via a Rabbi Trust eliminates most of the risk-shifting effects. Firms with the lowest compensation leverage gap between CEO and non-CEO executives were most likely to observe the agency costs associated with high executive leverage. When compensation leverage structures were substantially different, or the pension was pre-funded, these effects are neutralized.

Originality/value

To the best of the author’s knowledge, the first paper addresses the effects of Rabbi Trusts on risk-shifting behavior between both CEOs and non-CEO executives. Further, the author extends Sundaram and Yermack (2007) using a hand-collected database six times larger than the original paper. By focusing on the “leverage gap” between CEOs and non-CEO executives, the author presents unique evidence that underlines the risk dynamics between CEOs and their boards.

Details

International Journal of Managerial Finance, vol. 14 no. 3
Type: Research Article
ISSN: 1743-9132

Keywords

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