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Book part
Publication date: 19 April 2011

The Effect of CEO Pay on Firm Valuation in Closely Held Firms

Ronen Barak, Shmuel Cohen and Beni Lauterbach

We collect data on CEO pay in 122 closely held firms traded on the Tel-Aviv Stock Exchange during 1995–2001. After estimating CEO pay performance sensitivity and CEO…

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Abstract

We collect data on CEO pay in 122 closely held firms traded on the Tel-Aviv Stock Exchange during 1995–2001. After estimating CEO pay performance sensitivity and CEO “excess pay,” we examine how these two pay attributes affect end of period (year 2001) Tobin's Q. Our main findings and conclusions are that (1) when CEO is from the controlling family, the end of period Q is negatively correlated with “excess” pay – “excess” pay to family-CEOs appears like a form of private benefits; (2) when a professional nonowner CEO runs the firm, end of period Q is positively correlated with CEO pay performance sensitivity – incentives to professional CEOs help promote firm value.

Details

International Corporate Governance
Type: Book
DOI: https://doi.org/10.1108/S1569-3732(2011)0000014004
ISBN: 978-0-85724-916-6

Keywords

  • CEO compensation
  • excess compensation
  • ownership structure
  • owner CEO
  • family firms

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Article
Publication date: 5 August 2019

Executive compensation of immigrant-founder firms in the USA

Chialing Hsieh, Vivek Pandey and Hongxia Wang

The purpose of this paper is to examine CEO compensation in immigrant-founder firms vs CEO compensation in non-immigrant-founder firms.

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Abstract

Purpose

The purpose of this paper is to examine CEO compensation in immigrant-founder firms vs CEO compensation in non-immigrant-founder firms.

Design/methodology/approach

Univariate and multi-variate tests are implemented. CEO compensation is designed as a function of the origin of a firm’s founder (immigrant or native), executive characteristics and firm characteristics with firm and year fixed effect regressions. CEO compensation is measured with cash pay, equity-based pay and total compensation.

Findings

CEOs of immigrant-founder firms receive higher equity-based compensation and higher total pay than CEOs of non-immigrant-founder firms and the levels of their equity-based and total compensation are contingent upon their stock ownership. CEOs in high-growth immigrant-founder firms receive higher stock-based pay than their counterparts in non-immigrant-founder firms. Immigrant-founder family firms compensate their CEOs with higher equity-based pay than immigrant-founder non-family firms.

Practical implications

The paper provides some explanations on the success of immigrant-founder firms. CEO compensation designs in immigrant-founder firms can be adopted in other firms.

Social implications

The paper provides some rationale for immigration legislation to encourage the talented to come to the USA and start their business in the USA.

Originality/value

This paper is the first to study executive compensation practice in immigrant-founder firms. The findings provide some practical and policy implications on immigration reform.

Details

International Journal of Managerial Finance, vol. 15 no. 4
Type: Research Article
DOI: https://doi.org/10.1108/IJMF-09-2017-0197
ISSN: 1743-9132

Keywords

  • Corporate governance
  • Executive compensation
  • Agency theory
  • Immigrant-founder firms

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Article
Publication date: 9 April 2018

The fattest of the fat cats: observations on Aguinis and colleagues’ findings on CEO pay

Donald C. Hambrick

This paper aims to elaborate upon the work of Aguinis and colleagues (this issue), who showed that there is almost no overlap between the chief executive officers (CEOs;…

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Abstract

Purpose

This paper aims to elaborate upon the work of Aguinis and colleagues (this issue), who showed that there is almost no overlap between the chief executive officers (CEOs; of American publicly traded corporations) who are in the upper tail of the CEO pay distribution and the firms that are in the upper tail of the performance distribution.

Design/methodology/approach

This paper is an essay/commentary regarding the merits and implications of the paper by Aguinis and colleagues.

Findings

Drawing upon prior work, the author proposes that CEOs’ tenure-long pay patterns are established – essentially baked-in or hardwired – when CEOs first get hired. For various reasons, some CEOs receive ultra-grand pay packages at the outset of their tenures, and nothing – including mediocre performance – brings about subsequent diminishment of those sweet terms.

Research limitations/implications

This paper sheds new light on the work by Aguinis and colleagues, in turn contributing new insights about the fairness (or lack thereof) of CEO pay determinations.

Originality/value

This paper integrates Aguinis and colleagues with prior works on CEO over- and underpayment.

Objetivo

El presente comentario se sustenta sobre el trabajo de Aguinis y colegas (este número) que muestra que apenas existe coincidencia entre los Consejeros Delegados (CEOs) de las empresas cotizadas americanas con mayor retribución y las empresas que mejores resultados obtienen.

Diseño/metodología/aproximación

Este artículo es un ensayo/comentario acerca de los méritos y las implicaciones del artículo de Aguinis y colegas.

Resultados

Tomando como base un trabajo previo, el autor propone que los patrones de antigüedad-retribución se definen cuando el Consejero Delegado es contratado por primera vez. Por varias razones, algunos Consejeros Delegados reciben una gran retribución al inicio de su carrera en la empresa, y nada –ni siquiera unos resultados mediocres- reduce esa retribución.

Limitaciones/implicaciones

El artículo arroja luz sobre el trabajo de Aguinis y colegas, y contribuye al debate acerca de la justicia (o ausencia de ésta) en la definición de los salarios de los Consejeros Delegados.

Originalidad/valor

El artículo integra el trabajo de Aguinis y otros en la literatura previa sobre la sobre o infra-retribución de los Consejeros Delegados.

Objetivo

Este comentário sobre o trabalho de Aguinis e colaboradores (este número), que mostram que quase não há coincidência entre os CEOs (das empresas americanas de capital aberto) que estão na parte superior da distribuição de pagamento do CEO e as empresas que estão na parte superior da distribuição de desempenho.

Desenho/metodologia/aproximação

Este artigo é um ensaio/comentário sobre os méritos e as implicações do artigo de Aguinis e colaboradores.

Resultados

Tomando como base um trabalho prévio, o autor propõe que os padrões de antiguidade/retribuição se definam quando o CEO é contratado pela primeira vez. Por várias razões, alguns CEOs recebem uma retribuição grande ao início da sua carreira na empresa, y nada – nem uns resultados medíocres -reduzem essa retribuição.

Limitações/implicações

O artigo lança nova luz sobre o trabalho de Aguinis e colaboradores, contribuindo com novos conhecimentos sobre a equidade (ou a falta) das determinações de pagamento dos CEOs.

Originalidade/valor

O artigo integra o trabalho de Aguinis y colaboradores na literatura prévia sobre a infra-retribuição dos CEOs.

Details

Management Research: Journal of the Iberoamerican Academy of Management, vol. 16 no. 1
Type: Research Article
DOI: https://doi.org/10.1108/MRJIAM-04-2017-0741
ISSN: 1536-5433

Keywords

  • CEO pay
  • Executive compensation
  • Corporate performance
  • CEO performance
  • Retribución de consejeros delegados
  • Retribución de ejecutivos
  • Resultados empresariales
  • Retribuição de CEOs
  • Retribuição de executivos
  • Resultados empresariais

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Article
Publication date: 9 April 2018

The continuing search for the Holy Grail

Robert M. Wiseman and Hadi Faqihi

The purpose of this paper is to enrich the finding by Aguinis et al. (2018) that there is little overlap between the extremes of firm performance and the extremes of CEO…

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Abstract

Purpose

The purpose of this paper is to enrich the finding by Aguinis et al. (2018) that there is little overlap between the extremes of firm performance and the extremes of CEO pay using a novel approach to characterize the distribution of pay and performance. The authors aim to shift the focus of compensation researchers from fruitlessly trying to link pay to performance to theory-rich accounts of pay that take into consideration the idiosyncratically motivated and socially embedded nature of CEO compensation.

Design/methodology/approach

The authors’ approach in this commentary is conceptual. They synthesize compensation literature from different fields such as economics, finance, sociology, strategic management and corporate law, as well as the empirical findings from the focal paper to support their characterization of the current state of the literature and future directions it should take.

Findings

The authors synthesize discussion of CEO pay down to three dimensions of CEO responsibilities and motivations. They argue that a realistic pay design should take into account that CEOs have limited control over performance, they are accountable to multiple stakeholders and they are motivated by financial as well as nonfinancial incentives.

Originality/value

The commentary presents researchers with high-order framing of CEO pay that goes beyond debating over methodology or narrowly focusing on limited behavioral drivers of pay setting. Instead, the authors encourage researchers to take advantage of their three-legged framework to theorize about CEO pay.

Objetivo

El objetivo de este comentario es enriquecer el hallazgo de Aguinis y otros (2018) de que existe poco solapamiento entre los extremos del resultado organizativo y los extremos de la retribución del CEO utilizando una aproximación novedosa para caracterizar ambas distribuciones. Queremos cambiar el foco de los investigadores de tratar inútilmente de vincular retribución y resultados hacia explicaciones basadas en teoría que tomen en consideración la naturaleza idiosincrática y socialmente embebida de la retribución del CEO.

Diseño/Metodología/Aproximación

Nuestra aproximación es conceptual. Sintetizamos la literatura sobre retribución de diferentes campos como la economía, las finanzas, la sociología, la gestión estratégica o la legal, así como los resultados empíricos del artículo central de este número para sostener nuestra caracterización del estado del arte de la literatura y las direcciones que debería tomar en el futuro.

Resultados

Sintetizamos la discusión sobre la retribución del CEO en tres dimensiones de responsabilidad del CEO y motivaciones. Argumentamos que un diseño realista de la retribución deben tener en cuenta que los CEO tienen un control limitado sobre los resultados, son responsables antes varios grupos de interés (stakeholders), y están motivados por incentivos financieros y no financieros.

Originalidad/Valor

Nuestro comentario va más allá del debate sobre la metodología, o de un enfoque estrecho sobre los determinantes conductuales de la fijación de la retribución. Por el contrario, animamos a los investigadores a utilizar nuestro marco de tres pilares para teorizar sobre la retribución del CEO.

Objetivo

O objetivo deste comentário é ampliar os achados de Aguinis et al. (2018) de que há pouca correlação entre os extremos da performance da empresa e da remuneração do CEO, usando uma abordagem inovadora para caracterizar a distribuição do pagamento e performance. Nosso objetivo é mudar o foco dos pesquisadores em remuneração, de indevidamente vincularem remuneração à performance, para teorias bem desenvolvidas sobre remuneração que considerem a natureza da remuneração do CEO como motivada de maneira idiossincrática e dependente do seu contexto social.

Design/Metodologia/Abordagem

Nossa abordagem nesse comentário é conceitual. Nós sintetizamos a literatura sobre remuneração de diferentes áreas, como economia, finanças, sociologia, gestão estratégica e direito corporativo, bem como os achados empíricos do artigo central desse comentário, para dar suporte à nossa caracterização do estado da arte e das direções futuras que a literatura deveria tomar.

Resultados

Nós sintetizamos a discussão sobre a remuneração do CEO em três dimensões de responsabilidades e motivações do CEO. Nós argumentamos que um plano de pagamento realista deve levar em conta que os CEOs têm controle limitado sobre os resultados, eles são responsáveis perante os stakeholders, e eles são motivados por incentivos financeiros e não financeiros.

Originalidade/ Valor

O nosso comentário apresenta aos pesquisadores uma estrutura conceitual para remuneração de CEOs que vai além do debate sobre a metodologia, ou do foco limitado nos determinantes comportamentais da configuração da remuneração. Ao invés disso, incentivamos os pesquisadores a utilizar nossa estrutura de três pilares para teorizar sobre o pagamento do CEO.

Details

Management Research: Journal of the Iberoamerican Academy of Management, vol. 16 no. 1
Type: Research Article
DOI: https://doi.org/10.1108/MRJIAM-10-2017-0784
ISSN: 1536-5433

Keywords

  • Stakeholder theory
  • Firm performance
  • Agency theory
  • Executive compensation
  • CEO pay
  • CEO performance
  • Commentary
  • Behavioral agency model
  • Non-financial incentives
  • Teoría de los interesados
  • Rendimiento de la empresa
  • Teoría de la agencia
  • Compensación ejecutiva
  • Pago de CEO
  • Desempeño del CEO
  • Comentario
  • Modelo de agencia de comportamiento
  • Incentivos no financieros
  • Teoria das partes interessadas
  • Desempenho firme
  • Teoria da agência
  • Compensação executiva
  • Remuneração do CEO
  • Desempenho do CEO
  • Comentçário
  • Modelo de agência comportamental
  • Incentivos não financeiros

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Article
Publication date: 1 September 1999

Relative performance evaluation in CEO pay contracts: evidence from the commercial banking industry

Anthony J. Crawford

Reviews previous research on the effects of CEO compensation structure, outlines the criteria for relative performance evaluation (RPE) and notes the paucity of empirical…

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Abstract

Reviews previous research on the effects of CEO compensation structure, outlines the criteria for relative performance evaluation (RPE) and notes the paucity of empirical evidence to support it. Reports a study of the use of RPE for US bank CEO compensation 1976‐1988; and its relationship to shareholder, market and industry returns. Explains the methodology and presents the results, which suggest that CEO pay is positively linked to firm performance, but negatively linked to market/industry performance; and that performance is positively linked to CEO option wealth. Adds that both the pay/performance link and the use of RPE increased after bank deregulation in the early 1980s. Considers consistency with other research and concludes that the reduction in compensation risk offered by RPE should reduce compensation cost and thus provide a good reason for the banking industry to increase its use.

Details

Managerial Finance, vol. 25 no. 9
Type: Research Article
DOI: https://doi.org/10.1108/03074359910766145
ISSN: 0307-4358

Keywords

  • Accounting research
  • Performance‐related pay
  • Chief executives
  • Risk
  • Banking
  • USA

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Article
Publication date: 1 July 2005

Firm competitive behavior as a determinant of CEO pay: Empirical evidence from the US pharmaceutical industry

Evan H. Offstein and Devi R. Gnyawali

To provide insight, explanation, and empirical evidence into how and why CEOs get paid the amounts that they do.

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Abstract

Purpose

To provide insight, explanation, and empirical evidence into how and why CEOs get paid the amounts that they do.

Design/methodology/approach

This paper blends several methodologies. Using qualitative interviews with several high level managers, it develops a coding listing to capture how pharmaceutical firms compete within their industry. The paper then uses a structured content analysis approach to capture the specific and observable competitive moves that pharmaceutical firms launch.

Findings

Base pay and bonus of the CEO are greater for firms that launch higher volumes of competitive actions. Furthermore, the variety of competitive moves appears to influence a CEO's base salary.

Research limitations/implications

This study has limited external validity since the firms in this sample are all large US pharmaceutical firms. The research implication is that, to date, firm size and past performance were identified as the single greatest predictors of CEO pay. Findings from this study suggest that how a firm behaves in a competitive context is as important as static characteristics of the firm (e.g. size) in predicting CEO pay levels.

Practical implications

Findings of this study begin to inform how directors may arrive at compensation decisions for CEOs. Since governance and CEO pay is becoming a more salient topic, this study suggests that directors can be trained or counseled on how to make more appropriate and refined decisions regarding CEO pay.

Originality/value

This paper employs a unique methodology to arrive at a question that is important, but under‐researched. Namely, we inform audiences who are concerned with how and why CEO's get paid what they do. Because CEO paychecks are a significant organizational expense, more research into how and why CEOs get paid a certain level is important theoretically and practically.

Details

Journal of Managerial Psychology, vol. 20 no. 5
Type: Research Article
DOI: https://doi.org/10.1108/02683940510602923
ISSN: 0268-3946

Keywords

  • Chief executives
  • Compensation
  • Remuneration
  • United States of America
  • Competitive strategy

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Article
Publication date: 9 April 2018

CEO pay is indeed decoupled from CEO performance: charting a path for the future

Herman Aguinis, Luis R. Gomez-Mejia, Geoffrey P. Martin and Harry Joo

The purpose of the study is to set a research agenda so that future conceptual and empirical research can improve the understanding of why CEO pay and CEO performance are…

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Abstract

Purpose

The purpose of the study is to set a research agenda so that future conceptual and empirical research can improve the understanding of why CEO pay and CEO performance are decoupled.

Design/methodology/approach

The paper compiles and adds to many of the explanations provided by this special issue’s nine commentaries regarding why CEO pay and CEO performance are decoupled. These explanations were grouped into two categories: economic (e.g. marginal productivity theory, agency theory and behavioral agency model) and social-institutional-psychological (e.g. CEO individual differences and characteristics and CEO-organization interactions). Moreover, new analyses based on additional data were conducted to examine measurement-related explanations for the observed pay-performance decoupling.

Findings

Results based on alternative measures of pay and performance confirmed, once again, the existence of pay-performance decoupling.

Research limitations/implications

This paper will stimulate research pitting theoretical explanations against each other to understand their relative validity in different contexts.

Practical implications

The paper informs ongoing efforts to link CEO pay to performance.

Social implications

The paper also revisits the decoupling of CEO pay and firm performance from a normative and value-based perspective (i.e. regarding whether pay and performance should be related).

Originality/value

The paper clarifies that the articles in this special issue largely concluded that CEO pay is decoupled from CEO performance.

Objetivo – El objetivo es proponer una ageda de investigación de forma que la futura investigación conceptual y empírica pueda mejorar la comprensión sobre por qué la retribución y el rendimiento del CEO no están conectados.

Diseño/metodología/aproximación – El artículo compila y añade a la mayoría de las explicaciones proporcionados por los nueve comentarios publicados en este número especial acerca de porqué la retribución y el rendimiento del CEO están desconectados. Estas explicaciones se agrupan en dos categorías: económicas (e.g. teoría de la productividad marginal, teoría de agencia, modelo de agencia comportamental) y socio-institucional-psicológicas (e.g. diferencias y características individuales del CEO, interacción CEO-organización). Además, se llevan a cabo nuevos análisis sobre datos adicionales para examinar algunas explicaciones relativas a la medición para la falta de conexión entre retribución del CEO y su rendimiento.

Resultados – Los resultados basados en medidas alternativas de retribución y rendimiento confirman, una vez más, la existencia de una desconexión entre ambas magnitudes.

Limitaciones/implicaciones – Este artículo estimulará a investigación contraponiendo diferentes explicaciones teóricas para entender su validez relativa en diferentes contextos.

Implicaciones prácticas – El artículo informa sobre los esfuerzos actuals para relacionar la retribución del CEO y su rendimiento.

Implicaciones sociales – El artículo revisa la desconexión entre la retribución y el rendimiento del CEO desde una perspectiva normativa y de valor (i.e. sobre si la retribución y el rendimiento deben estar conectados).

Originalidad/valor – El artículo clarifica que los artículos en este número especial concluyen que la retribución del CEO está desconectada de su rendimiento.

Objetivo

O objetivo é estabelecer uma agenda de investigação para que futuros estudos conceptuais ou empíricos possam melhorar a compreensão do porquê de a compensação do CEO e o desempenho do CEO estarem dissociados.

Metodologia – O artigo compila e acrescenta às muitas explicações fornecidas pelos oito comentários deste número especial sobre as razões da dissociação da compensação e do desempenho do CEO. Estas explicações agrupam-se em duas categorias: económicas (eg., teoria da produtividade marginal, teoria da agência, modelo da agência comportamental) e Socio-institucional-psicológicas (eg., características e diferenças individuais do CEO, interações CEO-Organização). Além disso, conduziram-se novas análises baseadas em dados para examinar explicações baseadas em medições para a dissociação pagamento-desempenho.

Resultados – Resultados baseados em medidas alternativas de pagamento e desempenho confirmaram, uma vez mais, a existência da dissociação entre pagamento e performance.

Limitações/implicações – Este artigo estimula investigação que contraponha diferentes explicações teóricas, para perceber a sua validade relativa em diferentes contextos.

Implicações práticas – O artigo dá informação sobre esforços em curso para ligar a compensação do CEO ao desempenho.

Implicações sociais – O artigo revisita a dissociação do pagamento e desempenho da empresa Numa perspectiva normative e baseada em valores (ie, sobre se a compensação e a performance devem estar relacionadas).

Originalidade/valor – O paper clarifica que os artigos neste número especial basicamente concluiram que a compensação do CEO está dissociala do desempenho do CEO.

Details

Management Research: Journal of the Iberoamerican Academy of Management, vol. 16 no. 1
Type: Research Article
DOI: https://doi.org/10.1108/MRJIAM-12-2017-0793
ISSN: 1536-5433

Keywords

  • Corporate governance
  • Firm performance
  • Agency
  • Power
  • Executive compensation
  • Justice
  • Chief executive officers, CEOs
  • Rendimiento de la empresa
  • Agencia
  • Poder
  • Retribución de ejecutivos
  • Justicia
  • Directores ejecutivos
  • Consejeros delegados, CEOs
  • Governança corporativa
  • Desempenho da empresa
  • Agência
  • Poder
  • Remuneração executiva
  • Justiça
  • Executivos, CEOs

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Article
Publication date: 1 August 2004

Executive compensation in internet‐related businesses

Mei H. Chen and Brian H. Kleiner

This article discusses the pay packages of executive officers at internetrelated business. Generally, the executives’ total compensation include salary, bonuses…

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Abstract

This article discusses the pay packages of executive officers at internetrelated business. Generally, the executives’ total compensation include salary, bonuses, commissions, stock options, and other financial compensation, such as forgiveness of loans, automobile expenses, etc. The 70 to 80 percent of the CEOs’ compensations are from gains of exercising stocks. In this tumbling market, shareholders are suffering the loss from the declining stock prices. However, many CEOs are still left with a mountain of wealth. Meanwhile, the board of directors also raises the stock options to retain their top talents even to those who are under‐performing. Besides CEOs’ compensations, we will also compare the CEO pay with non‐CEO pay packages. The CEOs compensations are still the highest. Furthermore, the average CEO made 42 times the average hourly worker’s pay in 1980, 85 times in 1990, and a staggering 531 times in 2000. Many shareholders are against these out of control pay packages. We conclude that it is time to review the process of determining the CEOs compensation, and that the significant presence of pay‐by‐performance should be taken into account in any examination of the practice and regulation of corporate governance.

Details

Management Research News, vol. 27 no. 8/9
Type: Research Article
DOI: https://doi.org/10.1108/01409170410784590
ISSN: 0140-9174

Keywords

  • Managers
  • Shareholders
  • Directors
  • Boards
  • Eexecutive compensation
  • Stock options
  • Corporate governance
  • Benefits of control

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Article
Publication date: 9 April 2018

The two sides of CEO pay injustice: A power law conceptualization of CEO over and underpayment

Herman Aguinis, Geoffrey P. Martin, Luis R. Gomez-Mejia, Ernest H. O’Boyle and Harry Joo

The purpose of this study was to examine the extent to which chief executive officers (CEOs) deserve the pay they receive both in terms of over and underpayment.

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Abstract

Purpose

The purpose of this study was to examine the extent to which chief executive officers (CEOs) deserve the pay they receive both in terms of over and underpayment.

Design/methodology/approach

Rather than using the traditional normal distribution view in which CEO performance clusters around the mean with relatively little variance, the authors adopt a novel power law approach. They studied 22 industries and N = 4,158 CEO-firm combinations for analyses based on Tobin’s Q and N = 5,091 for analyses based on return on assets. Regarding compensation, they measured the CEO distribution based on total compensation and three components of CEO total pay: salary, bonus, and value of options exercised.

Findings

In total, 86 percent of CEO performance and 91 percent of CEO pay distributions fit a power law better than a normal distribution, indicating that a minority of CEOs are producing top value for their firms (i.e. CEO performance) and a minority of CEOs are appropriating top value for themselves (i.e. CEO pay). But, the authors also found little overlap between CEOs who are the top performers and CEOs who are the top earners.

Implications

The findings shed new light on CEO pay deservingness by using a novel conceptual and methodological lens that highlights systematic over and underpayment. Results suggest a violation of distributive justice and offer little support for agency theory’s efficient contracting hypothesis, which have important implications for agency theory, equity theory, justice theory, and agent risk sharing and agent risk bearing theories.

Practical implications

Results highlight erroneous practices when trying to benchmark CEO pay based on average levels of performance in an industry because the typical approach to CEO compensation based on averages significantly underpays stars and overpays average performers.

Originality/value

Results offer new insights on the extent of over and underpayment. The findings uncover an extremely large non-overlap between the top earning and top performing CEOs and to an extent far greater in magnitude than previously suggested.

Objetivo – El objetivo de nuestro estudio fue examinar si los directores ejecutivos (CEOs) merecen la remuneración monetaria que reciben.

Metodología – En lugar de utilizar el enfoque tradicional que asume que la distribución del rendimiento de CEOs sigue la curva normal (con la mayoría de CEOs agrupados en torno a la media y relativamente poca variación), adoptamos un enfoque diferente basado en la ley de potencia. Incluimos 22 industrias y N = 4.158 combinaciones de CEO-firma para análisis basados en Tobin’s Q y N = 5.091 para análisis basado en la rentabilidad de los activos. En cuanto a la remuneracion, medimos distribuciones basadas en la remuneración total y tres componentes del pago completo a los CEOs: salario, bonos, y el valor de las opciones ejercitadas.

Resultados – 86% de las distribuciones de rendimiento de CEOs y el 91% de las distribuciones de pago de los CEO se aproximan mejor a una distribución de ley de potencia que a una distribución normal. Esto indica que una minoría de los CEOs produce un valor muy superior para sus empresas (es decir, el rendimiento CEO) y una minoría de los CEOs apropia valor superior para sí mismos (es decir, pago de los CEO). Sin embargo, encontramos muy poco solapamiento entre aquellos CEOs que se desempeñan mejor y los CEOs que ganan más.

Implicaciones – Nuestros hallazgos usando una conceptualización y metodología novedosas ponen en relieve que a muchos CEOs se les paga demasiado y que a muchos no se les paga suficiente (en comparación con su desempeño). Los resultados sugieren una violación de los principios de justicia distributiva y no apoyan la hipótesis de “contratación eficiente,” y tienen implicaciones para para la teoría de la agencia, de la equidad, de la justicia, y de la distribución de riesgos.

Implicaciones prácticas – Los resultados destacan las prácticas erróneas con respecto a la distribución de compensación a CEOs que se basan en los niveles medios de rendimiento en una industria. Estas prácticas llevan a no pagar suficiente a los directivos “estrella” y pagar demasiado a los directivos con desempeño medio.

Originalidad/valor – Los resultados ofrecen nuevas perspectivas sobre la relación entre desempeño y compensación de CEOs y que los que se desempeñan mejor no son los que reciben más pago, y viceversa. Estas diferencias son mucho más grandes de que lo que se creía anteriormente.

Objetivo – O objetivo do nosso estudo foi examinar se os CEOs merecem a compensação monetária que recebem.

Metodologia – Em vez de utilizar a abordagem tradicional que assume que a distribuição do desempenho do CEO segue a curva normal (com a maioria dos CEOs agrupados em torno da média e relativamente pouca variação), adotamos uma abordagem diferente com base num enfoque inovador da lei de potência. Incluímos 22 indústrias e N = 4.158 combinações de CEO-empresa para análise baseada no Q de Tobin e N = 5091 para análise baseado na rentabilidade dos ativos. Em relação à compensação, medimos as distribuições de CEO com base no total de compensação e três componentes do pagamento total dos CEOs: salário, bônus e o valor das opções exercidas.

Resultados – 86% do desempenho do CEO e 91% das distribuições de pagamento do CEO correspondem a uma lei de potência melhor do que uma distribuição normal, indicando que uma minoria de CEOs está produzindo valor superior para suas empresas (ou seja, desempenho do CEO) e uma minoria de CEOs se apropriando do valor superior para si próprios (isto é, o salário do CEO). Mas, também encontramos pouca sobreposição entre CEOs que tem os melhores desempenhos e os CEOs que tem as maiores ganancias.

Implicações – Nossas descobertas lançam nova luz sobre o merecimento do pagamento do CEO, usando uma nova lente conceitual e metodológica que destaca o excessivo e o baixo pagamento sistemático. Os resultados sugerem uma violação da justiça distributiva e não apoiam a hipótese da contratação eficiente, e tem implicações para a teoria da agência, teoria da igualdade, teoria da justiça e distribuição de riscos.

Implicações práticas – Os resultados destacam práticas errôneas quando se tenta benchmark de remuneração do CEO baseado em níveis médios de desempenho em uma indústria, porque essas práticas levam a não pagar o suficiente aos CEOs “estrela” e pagar em excesso CEOs com desempenho médio.

Originalidade/valor – Os resultados oferecem novas perspectivas sobre a relação entre desempenho e retribuição dos CEOs e que os que desempenham melhor não são os que recebem um pagamento maior, e vice-versa. Estas diferenças são muito maiores do que se pensava anteriormente.

Details

Management Research: Journal of the Iberoamerican Academy of Management, vol. 16 no. 1
Type: Research Article
DOI: https://doi.org/10.1108/MRJIAM-02-2017-0731
ISSN: 1536-5433

Keywords

  • Justice
  • Power
  • Firm performance
  • Corporate governance
  • Agency theory
  • Executive compensation
  • CEO pay
  • CEO performance
  • Chief executive officers, CEOs
  • Directores ejecutivos (CEOs)
  • Compensación de ejecutivos
  • Desempeño de las empresas
  • Teoría de la agencia
  • Teoría de la justicia
  • Equidad
  • Poder
  • Diretores executivos (CEOs)
  • Compensação de executivos
  • Desempenho das empresas
  • Teoria da agencia
  • Teoria da justiça
  • Igualdade
  • Poder

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Article
Publication date: 9 April 2018

The elusive linkage between CEO pay and performance

Gerald Edward Ledford and Edward E. Lawler

The authors comment on the paper by Aguinis et al. (2018). The authors believe that their hypotheses probably are true, but their methodology is flawed and their data do…

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Abstract

Purpose

The authors comment on the paper by Aguinis et al. (2018). The authors believe that their hypotheses probably are true, but their methodology is flawed and their data do not support their conclusions.

Design/Methodology

The authors review and comment on the paper by Aguinis et al. (2018).

Findings

The data do not adequately demonstrate a power law distribution for chief executive officer’s (CEO) performance because the analysis confounded external conditions affecting performance, and the authors use inappropriate dependent variables. The analysis does not demonstrate a power law distribution for CEO pay because the analysis does not take into account changes in pay level and mix over time. The analysis does not show a lack of overlap between the two distributions because it does not take into account the way that the CEOs are paid for performance and because it uses CEO pay averaged over CEO tenure.

Research limitations/implications

A more convincing analysis of the authors’ hypothesis would require the use of total shareholder return (TSR) as the dependent variable for organizational performance and would require a number of much more specific controls.

Practical implications

The authors call for greater use of power law thinking by practitioners in setting CEO pay. Their analysis indicates that practitioners already think in power law terms and allocate CEO pay accordingly. Moreover, power law theory and findings could be misused as an excuse for paying average CEOs much more than they are already paid.

Social implications

The authors add another perspective on CEO pay.

Originality/value

The authors’ perspective is informed both by research and by consulting experience on CEO pay projects.

Objetivo

Comentamos el trabajo de Aguinis et al. (2018). Creemos que sus hipótesis son probablemente ciertas, pero su metodología presenta deficiencias y sus datos no apoyan sus conclusiones.

Diseño/Metodología

Revisamos y comentamos el trabajo de Aguinis y otros (en prensa).

Resultados

Los datos no demuestran adecuadamente la existencia de una distribución ley de potencia (power-law) porque sus análisis no consideran las condiciones externas que afectan al resultado de la empresa y los autores hacen un uso inapropiado de las variables dependientes. Los análisis no demuestran que la retribución de los CEO sigua una distribución de ley de potencia porque no toman en consideración cambios en el nivel o composición de la retribución en el tiempo. Los análisis no muestran una falta de superposición entre las dos distribuciones porque no toman en cuenta la forma en la que los CEO son retribuidos por los resultados y porque utilizan la retribución media calculada sobre la antigüedad del CEO.

Limitaciones/implicaciones

Un análisis más convincente de las hipótesis planteadas requiere el uso del rendimiento total de los accionistas como variable de resultados organizativos y un número mucho más específico de variables de control.

Implicaciones prácticas

Los autores animan a los profesionales a pensar más en términos de una distribución de ley de potencia a la hora de fijar la retribución del CEO. Sus análisis indican que los profesionales ya piensan en términos de ésta distribución y asignan las retribuciones de manera acorde a ella. Es más, los resultados derivaos de la teoría de la ley de potencia pueden utilizarse erróneamente como una excusa para pagar menos al CEO medio.

Implicaciones sociales

Añadimos otra perspectiva sobre el pago a los CEO.

Originalidad/valor

Nuestra perspectiva viene avalada por nuestra investigación y experiencia de consultoría en proyectos de retribución a CEOs.

Objetivo

Discutimos o trabalho de Aguinis et al. (2018). Acreditamos que as suas hipóteses são provavelmente verdadeiras, mas a sua metodologia apresenta deficiências e os dados apresentados não suportam as conclusões.

Design/metodologia

Analisamos e comentamos o trabalho de Aguinis et al. (2018).

Resultados

Os dados não demonstram adequadamente a existência de uma distribuição de poder-lei porque suas análises não consideram as condições externas que afetam o resultado da empresa e os autores fazem uso impróprio das variáveis dependentes. As análises não mostram que as recompensas dos CEOs seguem uma distribuição da lei do poder porque não tomam em consideração as mudanças no nível ou na composição da remuneração sobre o tempo. As análises não mostram falta de sobreposição entre as duas distribuições, porque não têm em conta a forma como os CEOs são pagos pelos resultados e porque utilizam a retribuição média calculada sobre a antiguidade do CEO.

Limitações/implicações

Uma análise mais convincente da hipótese proposta requer o uso do desempenho total dos acionistas como uma variável de resultados organizacionais e um número muito mais específico de variáveis de controle.

Implicações práticas

Os autores incentivam os profissionais a pensar mais em termos de uma distribuição da lei de potência quando se define o salário do CEO. Suas análises indicam que os profissionais já pensam em termos dessa distribuição e distribuem as recompensas de forma proporcional a ela. Além do mais, os resultados derivados da teoria da lei de poder podem ser erroneamente usados como uma desculpa para pagar menos para o CEO médio.

Implicações sociais

Agregamos uma outra perspectiva no pagamento ao CEO.

Originalidade/valor

Nossa perspectiva é apoiada pelo nosso pesquisa e experiência de consultoria em projetos de remuneração para CEOs.

Details

Management Research: Journal of the Iberoamerican Academy of Management, vol. 16 no. 1
Type: Research Article
DOI: https://doi.org/10.1108/MRJIAM-10-2017-0787
ISSN: 1536-5433

Keywords

  • Research
  • Corporate performance
  • Consulting
  • CEO pay
  • CEO performance
  • Power law distribution
  • Retribución del CEO
  • Resultados corporativos
  • Investigación
  • Consultoria
  • Retribuição do CEO
  • Resultados corporativos
  • Pesquisa
  • Consultoria

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