Search results

This study examines how cash and stock bonus compensations influence top executives to allocate a firm's resources to fixed intangible assets investment and the extent to which this relationship is conditional on executives' ownership, firm growth, internal cash flow and leverage.

Using data from 213 non-financial and non-utility UK FTSE 350 firms for the period 2007–2015, generating a total of 1,748 firm-year observations, panel econometric methods are employed to test the authors’ model.

The authors observe that executives' cash bonus compensation positively impacts fixed intangible assets investment. However, executives' stock bonus compensation has a negative and significant influence on fixed intangible assets. The authors further observe that executives either cash bonus or stock bonus crucially invest more in fixed intangible assets when the firm has a growth potential. Also, both cash bonus and stock bonus executives in firms with lower internal cash flow spend less on fixed intangible assets. Similar results are also observed for those stock bonus-motivated executives with an increase in fixed intangible assets for low leverage firms but a decrease for high leverage ones.

A key limitation of this study is its concentration on a single country (United Kingdom). Thus, future studies can expand the focus of this study by looking at it from the perspective of multiple countries.

The practical relevance of the study results is that firms with high growth opportunity in fixed intangible assets activity can use more cash bonus compensation (risk-avoiding incentive) to induce corporate executives to invest more in such activity. This finding is particularly important given the increasing appetite of firms in this knowledge-based economy to create expansion through fixed intangible assets investment. That is, for firms to increase fixed intangible assets investment, this study suggests that executive cash bonus compensation cannot be ignored.

While this paper builds on the classic Q theory of investment literature, it is the first – to the best of the authors’ knowledge – to explore how cash and stock bonus compensations influence top executives to allocate a firm's resources to fixed intangible assets investment and the extent to which this relationship is conditional on executives' ownership, firm growth, internal cash flow and leverage.

This study aims to examine the impact of executive bonus compensation on a firm’s financial leverage policy and the extent to which this compensation–leverage relation is moderated by firm growth and executive ownership.

Using data from 213 non-financial and non-utility UK FTSE 350 firms for the period 2007–2015, generating a total of 1,784 firm-year observations, panel econometric methods are used to test the model.

Drawing insights from agency theoretic view, this paper uncovers that managerial cash bonus compensation is negatively and significantly related to financial leverage. However, stock bonus compensation has a positive and significant impact on leverage. This study also observes that compensation–leverage is moderated by both firm growth and executive ownership. The results remain robust to alternative econometric models.

While this paper builds on the risk-motivated argument of executive bonus compensation literature, it is the first – to the best of the knowledge – to explore the bonus compensation-corporate financial leverage and, particularly, examine the extent to which firm growth and corporate executive ownership matter in this relationship.

This paper seeks to add historical perspective to the contemporary debate concerning the efficacy of executive bonuses. That debate has become particularly significant in the USA as a result of the recent economic collapse and the federal government's Troubled Asset Relief Program, turning the government – at least temporarily – into a shareholder of numerous companies.

The article is primarily an intellectual history of an idea: that executive bonuses are required to achieve top performance. The main primary source is two sets of articles from the Harvard Business Review from the 1930s and the 1950s. These are supplemented by other primarily and secondary material.

Arch Patton, a McKinsey Consultant and the most published author in the Harvard Business Review during the 1950s, constructed a defense of executive bonuses based on ideology rather than empirical evidence.

Constituents of the current debate on executive bonuses should be aware of the degree to which statements of support for efficacy are often presented as universally and exclusively correct which may result in distortion and concealment of real interests.

Despite the ubiquity of executive bonuses, no study has looked at the historical roots of the debate. Agency theory, which is presented as a rational and legitimate argument in favor of such bonuses, fails to address the historical context in which bonuses actually took root in corporate America.

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).

Many argue that the design of compensation contracts for public company chief executive officers (CEOs) is often not guided by a goal of value maximization. Yet, there is limited direct empirical evidence on the negative consequences of the proposed inefficient contracting between shareholders and CEOs. Using data on CEO bonus contracts of the S&P 500 firms, we investigate potential firm performance implications of the use of qualitative criteria such as leadership and mentoring in those contracts. We maintain that unlike quantitative criteria, qualitative criteria are difficult to define and measure on an objective basis, possibly resulting in an inefficient and biased incentive structure. Twenty-five percent of the sample observations have CEO bonus contracts that include a qualitative criterion for bonus payment determination. Our results show that employee productivity, asset productivity, capital expenditures, and future abnormal stock returns are lower for firms that use a qualitative criterion in CEO bonus contracts than those that do not. Further, contrary to the argument in prior literature that earnings management decreases with the use of subjective performance indicators in incentive contracts, we find that income-increasing accruals are actually higher when the CEO bonus contract includes a qualitative criterion. We recommend that compensation committees set concrete, measurable performance goals for CEOs, providing CEOs with better guidance and helping improve their corporate decision making.

The purpose of this paper is to examine the association between institutional investor ownership and the compensation of executives at US banks during the financial crisis period.

This paper uses a linear regression model to examine the association between institutional ownership and the level of executive compensation at US banks.

Institutional investors influence executive compensation at banks with the impact being most pronounced for the CEO. Ownership by the top five investors is associated with greater total compensation. Active investors have the strongest impact on executive compensation as evidenced by a positive association between active ownership and both equity compensation and total compensation. As well, active ownership is negatively associated with bonus compensation. The paper also finds that passive and grey investors influence compensation but to a less significant extent than active investors.

The results suggest that the monitoring role of active and passive institutional investors is different in the banking industry. As well, institutional investors were likely a driving factor in shaping the compensation packages of the top executive team during the financial crisis period.

Stakeholders at banks should be aware that not all types of institutional investors act as effective monitors over issues such as controlling the amount of executive compensation paid to the highest paid executive, the CEO. Prospective investors should consider the type of institutional investor that owns large blocks of equity when making an investment decision. Namely, the interests of existing institutional investors may differ from their own interests.

This paper provides a new perspective on the monitoring roles played by different types of institutional investors. Furthermore, it provides a more comprehensive analysis by investigating the role of institutional investors in shaping the compensation packages of CEOs and other top executives including chief financial officers (CFOs) who play a vital role in risk management at banks.

The main purpose of this paper is to investigate the relative firms’ performances of equity‐based compensation schemes using a panel regression approach from Taiwanese experience.

Previous theory considers executive stock options as an important input in the production process, but the empirical support for the performances of equity‐based compensation schemes is mixed in developed countries. This paper uses a panel data regression to analyze the influence of stock bonus and executive stock option on performance.

The evidences in Taiwan suggest that there exist positive associations between the amount of stock bonuses and firms’ operating performance. It is also found that firms with larger firm size or high growth opportunity tend to adopt stock bonus

The first limitation is that we the dataset over our sample period 1999‐2001 is still incomplete because the executive stock options allowed by the regulation are not prevalent in Taiwan over that period. The second limitation is the unique stock bonus system in Taiwan is not observed for developed countries.

The result imply a positive association between stock bonus and firm's operating performance. Companies with well‐designed bonus compensation may lead to better performance.

The unique stock bonus compensation schemes in Taiwan are used in general to contribute to the success of the high‐tech companies. This paper first addresses the importance of the stock bonus on compensation issue for high‐tech companies. This added knowledge is beneficial to practitioners and academics whose interest lies in equity‐based compensation and performance.

As a consequence of the global financial crisis and widespread disquiet over executive bonuses and other remuneration, in April 2009 the Financial Stability Forum enunciated principles for sound compensation as part of an effort to ensure the effective governance of compensation. The core problem this article seeks to address is the measurement of the contribution of corporate executives to the intrinsic value of the firm as part of an initial step in the process of implementing the Financial Stability Forum's principles. Unless the contribution of corporate executives can be measured in a manner that satisfies the requirements of sound research methodology, rigorous epistemology, and statutory requirements, it is doubtful whether these principles can be operationalized. Thus, the purpose of this paper is to show how the contribution of corporate executives can be estimated from audited financial statements. From the core problem and purpose of this article, its title is drawn.

Relevant sections of the report of the Financial Stability Forum 2009, the UK Corporate Governance Code of 2010, and the UK Companies Act of 2006, in conjunction with important reviews such as the Turner Review of 2009 and the Walker Review of 2009 were studied. Data inputs from audited financial statements were applied to appropriate well‐established non‐controversial valuation equations that are based on “first‐principles” of corporate finance, and the contribution of corporate executives to the intrinsic value of the firm was estimated in order to illustrate the validity of this approach.

The paper shows that contribution to the intrinsic value of the firm made by corporate executives can be measured in a non‐controversial and transparent way, and once done, can form the basis for quantifying executive remuneration on the basis of valued‐added. No attempt is made to address the fractional share of value‐added that should be placed in a bonus‐pool.

From an extensive survey of publicly available literature, there is no evidence to suggest that the measurement of the contribution of corporate executives to the intrinsic value of the firm, as part of an initial step in the process of implementing the principles of the Financial Stability Forum 2009, has yet been published.

Using a series of interviews with top executives conducted between October 1992 and April 1993 in 24 large British companies, discusses the way that top executive pay is determined. Finds that there are well ordered practices and procedures in place. These are analysed from the perspective of the recommendations of the Cadbury Committee report. The analysis highlights the key role played by non‐executive directors in the process and underscores the importance of the nominations process by which non‐executives are selected. This is also the area where the greatest revision in current practice seems to be required.

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.