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Agency problems are more severe for multinational corporations (MNCs) and multinational enterprises compared to their domestic counterparts. As companies develop diversified operations, their managers face more challenges. An incentive compensation structure has been designed to align the benefits of managers with those of shareholders. Additionally, corporate social responsibility (CSR) has become increasingly crucial for companies. MNCs must gain the trust of more investors to improve their corporate reputation and financial performance. CSR enables MNCs with a high sense of social responsibility to expand their investor base, reduce perceived risks, and decrease information asymmetry. Our empirical findings reveal that Taiwanese MNCs can enhance their performance by implementing cash-based compensation and pursuing CSR activities.

This study aims to investigate whether integrating environmental, social and governance (ESG) practices mediates the relationship between executive incentive compensation and the financial performance of Islamic and conventional banks in the Middle East and North Africa (MENA) region.

This study used multiple regression models to analyze the effectiveness of ESG practices as a mediating variable in explaining the relationship between executive incentive compensation and banks’ financial performance between 2015 and 2021. The sample consisted of 57 Islamic and conventional banks operating in the MENA region, and the data were collected from the Thomson Reuters database (Data Stream).

This research paper showed the positive and significant mediating effect of the ESG practice on Banks’ financial performance. Thus, banks’ financial and stock market profitability is influenced by ESG information disclosure. This finding shows that taking ESG into account improves the relationship between executive incentive compensation and banks’ financial performance.

The results may interest academic researchers, regulators and policymakers and would support stakeholders and decision-makers who wish to discover how executive incentive compensation affects financial performance in banks.

This study contributes to previous literature by studying the mediating effect of ESG practices on the relationship between executive incentive compensation and banks’ financial performance. Indeed, the originality of this research paper is justified by the scarcity of studies and, to the best of the authors’ knowledge, constitutes one of the first attempts to examine this relationship via a mediating variable, i.e. ESG.

The purpose of this paper is to examine if the structure and design of CEO compensation has any effect on firm innovation. It further investigates the effectiveness of each component of portfolio of compensation incentives in encouraging innovation.

This study uses systems of simultaneous equations to model the interdependence between compensation incentives and measures of firm innovation.

Results indicate that the pay‐performance sensitivity of the CEO portfolio of compensation incentives is positively related to investment in R&D expenditures, number of patents and citations. Options in general are more effective than stocks. However, within the options portfolio, recently awarded and unvested options are more effective than previously awarded and vested options. Restricted stock is more effective than unrestricted stock.

Measuring innovation output is difficult as innovation could take different forms, including business model innovation, which does not appear in the patent data.

Stock options encourage investment in value‐increasing innovations and should remain a significant part of managerial compensation. If the firm awards stock, it should only award restricted stock.

This study uses comprehensive measures of compensation incentives and firm innovation. It views incentives as a portfolio of stock and options and uses incentives in their entirety. It examines the effectiveness of each component of the portfolio in encouraging innovation. It measures innovation as investment into the innovation process (R&D expenditures) and the resulting success of that investment (patents and citations).

This paper aims to mainly investigate the role of trust, which is an important informal system, in executive compensation incentives.

Using the data of Chinese A-share private enterprises from 2003 to 2014, the paper estimates the effect that trust has on executive compensation incentives.

Results indicate that trust can significantly enhance the effectiveness of executive compensation incentives. Furthermore, the better the regional trust environment in which companies are located, the more pronounced the effect is. In particular, the effect of trust on executive compensation incentives is only significant when the formal legal system is immature. As companies continue to grow and develop and the formal system becomes perfect, the role of trust weakens. The formal system, including the corporate governance mechanism and perfect legislation, then becomes the key to promoting executive compensation incentives.

This paper provides evidence of the significance of both informal and formal systems. It not only emphasises the important role that the informal system has played in “the mystery of China’s economic growth” but also supports the “ruling the country by law” strategy for the sustainable development of China’s economy.

This paper reveals the relationship between the formal and informal systems, which provides a new perspective on and empirical evidence for the determinants of executive compensation incentives, and it also finds an explanation for the rapid growth of China’s economic development.

Most research on worker participation treats it as an establishment-level phenomenon even though it is seldom used on an establishment-wide basis. This paper, however, examines how three forms of incentive compensation are used at the job level, and it assesses the potential ramifications for inequality. I find that the use of incentive compensation reflects the gender composition, unionization, and functional role of jobs. Jobs with many full-time women, for instance, are less likely to use group incentives and profit sharing because they are less likely to play central or managerial roles in establishments. This suggests that incentive compensation may increase inequality.

This paper aims to examine how the use of environmental, social and governance (ESG) incentives intersects with top management power and various corporate governance mechanisms to affect excess annual cash bonus compensation.

The authors use a novel artificial intelligence (AI) technique to obtain data about ESG incentives use by firms in the S&P 500. The authors test the hypotheses with an endogenous treatment-regression and a contrast test.

When the top management team has power and uses ESG incentives, there is a 32% reduction in excess annual cash bonuses implying ESG incentives are an effective corporate governance tool. However, nuanced analyses reveal that when powerful management teams with ESG incentives are from environmentally sensitive industries, have a corporate social responsibility (CSR) committee or have long-term view institutional shareholders, they derive excess bonuses.

Stakeholders will better understand management’s motivations for the inclusion of ESG incentives in executive compensation contracts and be able to identify situations which require closer scrutiny.

Given the increased popularity of ESG incentives, society, regulators, boards of directors and management teams will be interested in better understanding when these incentives might be effective and when they might be abused.

To the best of the authors’ knowledge, this study is the first to examine the use of ESG incentives in relation to excess pay. The authors contribute to both the CSR and executive compensation literatures. The work also uses a new methodological technique using AI to gather difficult-to-obtain data, opening new avenues for research.

The purpose of this article is to examine whether the design of chief executive officer (CEO) compensation generates incentives to engage in managerial behavior that enhances customer satisfaction and whether these incentives, in turn, lead to higher firm value.

A unique dataset combining customer satisfaction and executive compensation data was used, and the relationship between option sensitivity, customer satisfaction and performance was modeled using simultaneous equations modeling with industry and year fixed effects.

Findings suggest that CEO compensation plays an important role in explaining the variation in customer satisfaction and firm value. Specifically, CEO short-term compensation (salary or bonus) has no affect on customer satisfaction or firm value; the sensitivity of CEO wealth from long-term incentive compensation to stock price changes is positively related and also exhibits an inverted U-shaped relationship with customer satisfaction; the sensitivity of CEO wealth from long-term incentive compensation to stock price changes interacts negatively with CEO longevity and industry concentration but positively with advertising expenses in affecting customer satisfaction; the sensitivity of CEO wealth from long-term incentive compensation to both stock price changes and customer satisfaction positively affect firm value; and the sensitivity of CEO wealth from long-term incentive compensation to stock price changes interacts positively with customer satisfaction to affect firm value.

This study suffers from several limitations. First, the sample is limited to firms with ACSI scores available. Second, this study is limited to only publicly traded firms, which limits our ability to generalize regarding customer satisfaction, option sensitivity and firm value.

This study has several important implications for researchers and managers. The first is that the corporate board appears to view investment in customer satisfaction as similar to an investment in other intangible assets or technology, in that they reward managers with a nonlinear payoff profile. To encourage managers to invest discretionary funds wisely, incentive compensation is important. Second, compensation committees of corporate boards should not allow the option sensitivity to reach extreme levels because, at some point, managers’ incentives appear to shift more toward short-term earnings objectives and away from investment in intangibles, which have a longer-term payoff. Third, if boards are concerned about customer satisfaction and market value, when designing compensation packages, they should shift their focus from the structure of pay to the sensitivity of pay to performance. The exception to this is that for CEOs with very long tenures (or for those close to retirement), high levels of option sensitivity may distort incentives away from a focus on customer satisfaction. Finally, our results indicate that strategies that enhance customer satisfaction provide an incremental benefit in terms of firm value, beyond incentive compensation strategies.

The results indicate that a “stakeholder focus” which includes customers is value adding for shareholders as well. The results also imply that perhaps using a “balanced scorecard” approach to assessing performance in terms of customer satisfaction outcomes, or at least acknowledging the drives of customer satisfaction explicitly, could be an alternative to using highly sensitive incentive-based compensation when such compensation schemes are less desirable.

Prior research has found that the structure of fixed versus incentive-based compensation impacts customer satisfaction. However, this is one of the first papers to investigate the relationship between the sensitivity of CEO compensation and customer satisfaction. Findings have important implications for boards who seek to structure CEO pay so that CEOs have incentives to enact policies that benefit customers and, in turn, firm performance.

Small public family firms apply contracting differently given the peculiar motivations of founding families and the degree to which they monitor operations. The purpose of this paper is to examine the effects of family ownership, control, and CEO dividends on CEO incentive compensation.

The sample consisted of 194 firms, covering about 40 percent of the relevant S&P SmallCap 600 firms. Employed were a logistic regression of the presence of incentive compensation plan and a panel regression of incentive compensation ratio against the family ownership, family CEO, CEO ownership, and dividend income variables as well as firm-specific and CEO-specific control variables.

For 1,532 firm-year observations among S&P SmallCap600 index firms during 1999-2007, the authors found that family ownership and CEO dividend income ratio negatively related to the likelihood of an incentive compensation plan and to the ratio of equity-based compensation to total CEO pay. Additionally, the effect of CEO dividend income was limited to firms with outside CEOs.

Boards of small capitalization firms should consider the incentive effects of CEO dividend income and CEO family membership when setting their compensation policies.

S&P SmallCap600 index firms are unique because they are much smaller than those listed in the S&P 500 or the Fortune 500, and are subject to more family influence. SmallCap firms are comparable in size to the foreign firms previously researched but are still well covered by analysts, and benefit from audited financial statement variables, which include dividends and stock market returns.

The purpose of this study is to investigate the association between corporate risk and the interaction between CEO incentive compensation and CEO overconfidence.

This empirical study performs random and fixed effect (FE) regression analysis. It uses option-implied measures of CEO overconfidence.

The authors contribute to the existing literature by showing (1) that the positive association between high CEO incentive compensation and corporate risk only exists in the sphere of overconfident CEOs and (2) that the positive association between overconfident CEOs and corporate risk only exists in the sphere of high CEO incentive compensation. The authors show that the combination of high CEO incentive compensation and CEO overconfidence is associated with an increase in corporate risk of approximately 6% while the individual effects are for all practical reasons negligible. The results imply that only the combination of high CEO incentive compensation and CEO overconfidence is associated with a significantly elevated level of corporate risk.

The findings are based on S&P 1500 non-financial firms in the period 2007–2016.

The findings have important implications in terms of CEO selection and compensation.

This study provides empirical evidence on the importance of the dual presence of high CEO incentive compensation and CEO overconfidence for corporate risk. The previous literature has primarily investigated these phenomena in isolation.

This chapter examines the sensitivity of executive incentive compensation to market-adjusted returns and changes in earnings for high-tech (HT) firms vis-à-vis firms (NHT) in other industries. Consistent with the hypotheses, this chapter uncovers the following evidence: First, the sensitivity of executive bonus compensation to market-adjusted returns is weaker and more symmetric for HT firms than for NHT firms (a control group), which implies that the problem of ex post settling up, documented in Leone et al. (2006), may be far less serious in HT firms than in NHT firms. Second, the sensitivity of executive incentive compensation to earnings changes is generally more symmetric for HT firms than for NHT firms, which is consistent with the view that HT firms engage in more conservative financial reporting than NHT firms. Third, the sensitivity of executive equity-based compensation to market-adjusted returns is significantly negative for HT firms compared to NHT firms when bad earnings news is announced. The results imply that HT firms, with a strong motive to attract and retain their highly talented executives, judiciously use both short-term and long-term incentive compensation schemes by compensating for a reduction of short-term incentive pay with an increase in long-term incentive pay. The issue of executive compensation has been a longstanding one in the United States and Canada, and the issue of executive compensation-performance sensitivity for HT firms is also relevant in this era of the information technology (IT) revolution, especially when prior research has shown that HT firms differ from NHT firms in their market-valuation process.