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The chapter investigates three channels through which private benefits are hypothesized to be extracted in dual class companies: excess executive compensation, excess capital expenditures and excess cash holdings.

With a propensity score matched sample of S&P 1500 dual class and single class companies with concentrated control, the chapter analyzes the relationship between the valuation discount of dual class companies and measures of excess executive compensation, excess capital expenditure and excess cash holdings.

Executives in dual class firms earn greater compensation relative to their counterparts in single class firms. This excess compensation is more pronounced when the executive is a family member. The value of dual class shares is discounted most when cash holdings and executive compensation of dual class are excessive. Excess compensation is highest for executives who are family members of dual class companies. The dual class discount is not related to excess capital expenditures.

The research shows that the discount in the value of dual class shares in relation to the value of closely controlled single class company shares is directly related to the channels through which controlling shareholder-managers can extract private benefits.

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.

During recent years, financial economists have made a significant contribution to the rapid development of a vibrant and growing literature on organization structure and corporate governance. In reviewing the development of this literature, it becomes easy to see how the seminal contributions of Ronald Coase (awarded the Nobel Prize in Economics in 1991) have become the cornerstone of a new institutional economics. In particular, researchers following in Coase’s footsteps have clarified the conditions under which voluntary contracts between private agents can resolve a wide variety of so-called “agency problems.” More than just representing an important discovery of the significance of transaction costs and property rights for the institutional structure and functioning of the economy, Coase’s work has become an important foundation for the theory of contracts and for the whole field of “organization economics.”

Following the optimal contracting hypothesis, this study investigates the issue of whether the board of director's ex ante choice to incorporate individual performance evaluation (IPE) measures into the CEO bonus plan rewards managerial decisions not reflected in measures of the firm's current financial performance. Empirical results provide evidence that the use of IPE in the CEO bonus plan is an increasing function of the proportion of outsider directors on the board and a decreasing function of the informativeness of financial performance measures. This study also demonstrates how the use of IPE in incentive contracting can explain CEO cash compensation that is not explained by the firm's current performance and governance variables. Finally, the CEO incentive cash compensation not explained by observable performance measures or governance structure is positively associated with firm future performance one year after its award. Overall, results support the optimal contracting hypothesis. IPE appears to be used to increase the informativeness of CEO actions and determine the level of current CEO cash incentive compensation.

Internal Revenue Code section 162(m) limits tax deductibility of executive compensation to $1 million per covered executive, with an exception for performance-based compensation. Both stock options and annual bonuses can qualify as performance-based, but they vary in the difficulty of qualification and the degree of additional compensation risk that qualification imposes on the executive. Most stock-option grants easily qualify with little change in risk, but qualification increases the risk associated with annual bonus compensation relative to what it was prior. The results of this study show that the propensity to issue stock options has increased for affected executives as a percentage of total compensation. Additional analysis suggests that this increase in stock-option compensation is substituting for lower increases in salary for affected executives, but not for annual cash bonuses. In fact, the results suggest that bonus compensation is also increasing as a percentage of total compensation. In summary, the results indicate that firms and their executives are acting in a way consistent with the incentives provided by section 162(m).

In late 2008, a crisis of unprecedented proportion unfolded on Wall Street that called for the government bailout of institutions. Although the crisis wreaked havoc on the lives of firm stakeholders and taxpayers, many of the executives of these rescued firms received bonus compensation as the year closed, which called into question the relationship between pay and performance. Equity compensation is viewed by many as the answer to the principal–agent dilemma. By giving an executive stock in the firm, as an owner, his interests will now be aligned with those of shareholders, and the executive will work to enhance firm performance. Equity compensation was on the rise during the 1990s when stock options became the largest component of executives’ compensation packages [Murphy, K. J. (1999). Executive compensation. Handbook of Labor Economics, 3, 2485–2563]. During the first decade of the new millennium, usage of restricted stock in compensation plans contributed to the executives’ total package. Whatever the form, equity compensation should induce managers to make decisions for the betterment of the firm.

Empirical evidence, however, has contradicted this ideal notion that mangers who are partial owners of the firm work to maximize firm value. Rather, managerial power in the form of earnings management and manipulation of insider information come to the forefront as a means by which executives can maximize the equity portion of their compensation packages. The Sarbanes–Oxley Act of 2002 as well as new accounting rules set forth by the Financial Accounting Standards Board may help to remedy some of the corporate ills that have surfaced in the past. This will not be possible, however, without compliance and increased corporate governance on the part of firms and their executives. Compensation committees must take great care in creating a compensation package that incites the executive to not only act in the best interest of his firm but also consider the welfare of the common good in his actions.

Purpose – The purpose of this chapter is to examine the hypothesized effects of board characteristics and performance on directors’ compensation in the Spanish corporations, whose corporate governance is a special example of a unitary board system.

Methodology/approach – In order to test the influence of a set of factors on directors’ compensation levels, we have developed several models based on linear panel data regression. The sample included 76 listed companies on the Spanish computerized trading system or Continuous Market for the period 2004–2009.

Findings – The control mechanisms, like board characteristics and performance and their effect on the level of directors’ compensation, depend on the types of director (executive, independent and proprietary).

Research limitations/implications (if applicable) – This study has certain limitations mainly related to problems associated with obtaining information. The methodology should be complemented by other types of analyses, such as the influence of the characteristics of the board on the remuneration structure in a greater level of disaggregation.

Practical implications (if applicable) – The results of this research chapter give reasons to regulators and investors to be aware of the importance of the board's characteristics as corporate control mechanisms over the directors’ remuneration and the necessity of connection between directors’ compensation and the firm's performance.

Originality/value of paper – Firstly, descriptive empirical evidence on the level of directors’ compensation is provided within a unitary board system for different types of directors. Secondly, an ample panel data set enables the examination of a set of determinants using panel data methods which control for unobserved firm heterogeneity. Finally, the perspective is extended from executive director compensation to other types of directors, such as proprietary or independent, which are very important features of the Spanish board structure.

Industrial relations, organizational behavior, and human resource management scholars have studied numerous aspects of internal workplace conflict resolution, ranging from the design of conflict resolution systems to the processes used for resolving conflicts to the outcomes of the systems. Scholars from these specialties, however, have paid considerably less attention to external workplace conflict resolution through litigation. This chapter analyzes certain areas of such litigation, focusing specifically on workplace conflicts involving issues of managerial and employee misclassification, independent contractor versus employee status, no-poaching agreements, and executive compensation.

Leading recent cases involving these issues are examined, with particular attention given to the question of whether the conflicts reflected therein could have been resolved internally or through alternative dispute resolution (ADR) methods rather than through litigation.

Implications of this analysis are drawn for workplace conflict resolution theory and practice. In doing so, I conclude that misclassification disputes could likely be resolved internally or through ADR rather than through litigation, but that no-poaching and executive compensation disputes could very likely not be resolved internally or through ADR.

The chapter draws on and offers an integrated analysis of particular types of workplace conflict that are typically treated separately by scholars and practitioners. These include misclassification conflicts, no poaching and labor market competition conflicts, and executive compensation conflicts. The originality and value of this chapter are to show that despite their different contexts and particular issues, the attempted resolution through litigation of these types of workplace conflicts has certain common, systematic characteristics.

Reports citing excessive CEO compensation continue to make the news with evidence of peer relationships between the CEO and the compensation committee often the center of debate. The compensation committee of the board of directors determines CEO pay and is often comprises CEOs from other companies as well as non-CEOs such as academic, exgovernment, and professional individuals. This study examines the influence of the psychological factor of social comparison over accounting performance measures in a compensation experiment with 176 subjects. The results of this study are consistent with social comparison theory in that CEO director-subjects award greater pay and shield the compensation of the CEO when firm accounting performance is below average. Additionally, we find shielding is mitigated when subjects are informed that the decision of the amount of compensation awarded will be revealed to the public.

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.