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Article
Publication date: 13 June 2019

Dorota Leszczynska and Jean-Louis Chandon

Do female CEOs face a compensation gap? The purpose of this paper is to examine whether gender affects the total compensation of today’s CEOs, and whether it moderates ten…

Abstract

Purpose

Do female CEOs face a compensation gap? The purpose of this paper is to examine whether gender affects the total compensation of today’s CEOs, and whether it moderates ten factors influencing their total compensation.

Design/methodology/approach

Taking the 54 female CEOs cited in the US 2014 Fortune’s 1000 report, a matched sample of male CEOs was selected, matched according to the crosstab of age by education and by the sizes of the companies directed by these female CEOs.

Findings

Using four years’ worth of Fortune reports, between 2013 and 2016, this matched sample indicates that female CEOs are not discriminated against in terms of total compensation. However, eight factors do show a significant effect on total compensation. Using moderation analysis, the present study reveals how gender interacts with company size, sector, membership of outside boards and nature of previous experience.

Research limitations/implications

This paper addresses an important and under-researched gap, with contradictory findings in the existing literature, by compiling and testing the characteristics of male and female CEOs which are not cited in Fortune 1000 reports.

Originality/value

Arguably, this is therefore one of the first papers to study gender differences in total compensation among Fortune 1000 CEOs using a matched sample technique, based on a larger number of female CEOs and a larger number of years than any previous research.

Details

Journal of Management Development, vol. 38 no. 5
Type: Research Article
ISSN: 0262-1711

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Article
Publication date: 24 June 2019

Linda Hughen, Mahfuja Malik and Eunsup Daniel Shim

The recent economic and political focus on rising income inequality and the extent of government intervention into pay policies has renewed the interest in executive…

Abstract

Purpose

The recent economic and political focus on rising income inequality and the extent of government intervention into pay policies has renewed the interest in executive compensation. The purpose of this paper is to examine the impact of changing regulatory landscapes on executive pay and its components.

Design/methodology/approach

This study examines a recent 23-year period divided into three distinct intervals separated by two major regulatory changes, the Sarbanes–Oxley Act (SOX) and the Dodd–Frank Act. Bonus, long-term and total compensation are separately modeled as a function of each regulatory change while controlling for firm size, performance and year. The model is estimated using panel data with firm fixed effects. An industry analysis is also conducted to examine sector variations.

Findings

Total compensation increased 29 percent following SOX and 21 percent following Dodd–Frank, above what can be explained by size, firm performance and time. Total compensation increased following both SOX and Dodd–Frank in all industries except for the financial services industry where total compensation was unchanged. Results are robust to using smaller windows around each regulation.

Research limitations/implications

This study does not seek to determine whether executive compensation is at an optimal level at any point in time. Instead, this study focuses only on the change in executive compensation after two specific regulations.

Originality/value

The debate over the extent to which the government should intervene with executive compensation has become a frequent part of political and non-political discourse. This paper provides evidence that over the long-term, regulation does not curtail executive compensation. An important exception is that total compensation was restrained for financial services firms following the Dodd–Frank Act.

Details

Journal of Applied Accounting Research, vol. 20 no. 3
Type: Research Article
ISSN: 0967-5426

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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

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Article
Publication date: 2 March 2015

Sebastien Deschenes, Hamadou Boubacar, Miguel Rojas and Tania Morris

The purpose of this article is to examine if certain board characteristics have an impact on the total remuneration of top management and the ratio of stock-based…

Abstract

Purpose

The purpose of this article is to examine if certain board characteristics have an impact on the total remuneration of top management and the ratio of stock-based remuneration to total top-management remuneration.

Design/methodology/approach

The study draws on data from the largest public Canadian companies, the constituents of the TSX/60 index. The study controls for firm size and profitability.

Findings

The authors concludes that total remuneration of top management is directly linked to board-member total remuneration and the board average number of director-tenure years. The study also shows that the ratio of stock-based to total top-management remuneration is positively affected by the percentage of independent directors, total remuneration of board directors, the ratio of stock-based remuneration of directors to their total remuneration and the average number of tenure years of the board of directors.

Practical implications

If regulators are determined to curb the excesses in top-management remuneration by means of promoting boards with certain characteristics, they should implement measures facilitating the control of directors’ remuneration and tenure, to discourage cronyistic behavior. Good corporate governance requires that the board act as a counterbalance to top management, ensuring that a substantial percentage of top-executive total compensation is variable, and not fixed. According to our findings, the boards that are the most likely to hold managerial avoidance of variable pay in check are those favoring director independence, variable director remuneration and longer director tenures.

Social implications

The present article examines specifically the latter aspect, namely, the role of board characteristics (independence, size, compensation, board director ownership and tenure, etc.) in the determination of top-management compensation. This relationship is important because it allows us to further the analysis of corporate governance. If the above-mentioned traits of boards have a meaningful relationship with the compensation of the top management, one might conclude that certain practices in the composition of boards could influence good corporate governance practices. This is relevant for regulatory agencies, for investors and for corporations.

Originality/value

The article adds to the extant literature in a number of ways. Firstly, it considers the role of the traits of the board in the determination of the compensation of the top-management teams, and not only of the chief executive officer, as is the focus of previous literature. Secondly, the article focuses on the power interplay between boards and managers, and, more particularly, on the ability of boards to be an effective mechanism of corporate governance. Finally, the article examines the potential impact of board traits in the determination of top-management compensation in the context of Canadian firms, a subject that has received less attention from academic research, which has mostly concentrated on analyzing the issue in the US context.

Details

International Journal of Accounting & Information Management, vol. 23 no. 1
Type: Research Article
ISSN: 1834-7649

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Book part
Publication date: 11 August 2014

Ben Amoako-Adu, Vishaal Baulkaran and Brian F. Smith

The chapter investigates three channels through which private benefits are hypothesized to be extracted in dual class companies: excess executive compensation, excess…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Originality/value

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.

Details

Advances in Financial Economics
Type: Book
ISBN: 978-1-78350-120-5

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Book part
Publication date: 16 July 2019

Mahfuja Malik and Eunsup Daniel Shim

The purpose of this study is to conduct a comparative analysis of the economic determinants of the compensation for chief executive officers (CEOs) between the pre- and…

Abstract

The purpose of this study is to conduct a comparative analysis of the economic determinants of the compensation for chief executive officers (CEOs) between the pre- and post-financial crisis periods. To conduct the comparative analysis, the authors consider five years before and five years after the financial crisis of 2008. The authors use the data from the US financial service institutions and run separate regressions for the pre- and post-crisis periods to check if there is any significant difference in the economic determinants of executive compensation before and after the financial crisis. The authors find that total compensation and its incentive components decreased significantly in the post-crisis period. In the pre-crisis period, total compensation was determined by stock performance, accounting profit, growth, and leverage, whereas in the post-crisis period stock returns and leverage are the major factors influencing total compensation. The authors also find that firms’ leverage negatively influences the sensitivity of the pay for performance, but the influence of leverage on pay for performance is weaker in the post-crisis period. Our research is significant in the context of the US economy, the regulatory reforms of financial institutions, and the perspectives of the executive compensations. This is the first study that compares the relationship between compensation and firm performance over the pre- and post-crisis periods. It is an explicit attempt to develop a theoretical understanding of the compensation/performance relationship for the financial industry, which is blamed for the financial crisis and is affected by the Dodd–Frank regulation after the crisis.

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Book part
Publication date: 14 August 2015

Stefania Albanesi, Claudia Olivetti and María José Prados

We document three new facts about gender differences in executive compensation. First, female executives receive lower share of incentive pay in total compensation

Abstract

We document three new facts about gender differences in executive compensation. First, female executives receive lower share of incentive pay in total compensation relative to males. This difference accounts for 93% of the gender gap in total pay. Second, the compensation of female executives displays lower pay-performance sensitivity. A $1 million dollar increase in firm value generates a $17,150 increase in firm-specific wealth for male executives and a $1,670 increase for females. Third, female executives are more exposed to bad firm performance and less exposed to good firm performance relative to male executives. We find no link between firm performance and the gender of top executives. We discuss evidence on differences in preferences and the cost of managerial effort by gender and examine the resulting predictions for the structure of compensation. We consider two paradigms for the pay-setting process, the efficient contracting model and the “managerial power” or skimming view. The efficient contracting model can explain the first two facts. Only the skimming view is consistent with the third fact. This suggests that the gender differentials in executive compensation may be inefficient.

Details

Gender in the Labor Market
Type: Book
ISBN: 978-1-78560-141-5

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Article
Publication date: 22 March 2019

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.

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
ISSN: 1743-9132

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Article
Publication date: 1 January 2013

Lisa M. Victoravich, Pisun Xu and Huiqi Gan

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.

Abstract

Purpose

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.

Design/methodology/approach

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

Findings

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.

Research limitations/implications

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.

Practical implications

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.

Originality/value

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.

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Article
Publication date: 13 February 2020

Rafiqul Bhuyan, Deanne Butchey, Jerry Haar and Bakhtear Talukdar

We investigate the relationship between chief executive officer (CEO) compensation and a firm's financial performance in the insurance industry to determine CEO pay…

Abstract

Purpose

We investigate the relationship between chief executive officer (CEO) compensation and a firm's financial performance in the insurance industry to determine CEO pay policies that are more effective in promoting specific financial corporate goals.

Design/methodology/approach

Considering different components of executive pay, we investigate the latter’s relationship with the corporate performance of the insurance industry using the generalized method of moments (GMM) model developed for dynamic panel estimation. Our data encompasses the periods before and after the 2008 financial crisis.

Findings

We observe that after the crisis the insurance industry experienced a major change in executives’ compensation packages. While CEOs’ compensation was primarily based on bonuses pre-crisis, the average size of the bonus was reduced to one-third of the level, stock awards and nonequity incentives were doubled and option awards increased almost 70 percent in the post-crisis period. It is also evident that the work experience of CEOs and the firm's financial performance play a significant role in determining CEO compensation. As the CEO becomes more experienced, stock awards and option awards replace cash bonus.

Originality/value

The paper finds supporting evidence for the agency-related problem in the insurance industry and the convergence of interest hypothesis, suggesting that a firm's market valuation rises as its managers own an increasingly large portion of the firm. To align the interest of owners with that of management, managers should be converted into owners via stock ownership. The paper addresses a topical issue regarding pay and performance and the effect of the financial crisis in the insurance industry.

Details

Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0307-4358

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