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Article
Publication date: 1 March 2003

Eunsup “Daniel” Shim and Jooh Lee

This paper attempts to examine a canonical (simultaneous) relationship between service industry CEOs' compensation and corporate performance with respect to…

Abstract

This paper attempts to examine a canonical (simultaneous) relationship between service industry CEOs' compensation and corporate performance with respect to accounting‐based and market‐based performance measures. In addition, this study examines the effect of firm size on compensation. The results of this study suggest that executive compensation depends simultaneously on both market‐based and accounting‐based performance measures. EPS, ROA, ROE and Market Rate of Return are positively associated with both cash compensation and long‐term compensation. Firm size is also positively related to the long‐term compensation.

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Review of Accounting and Finance, vol. 2 no. 3
Type: Research Article
ISSN: 1475-7702

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Book part
Publication date: 12 November 2016

Hao Liang, Luc Renneboog and Sunny Li Sun

We take a state-stewardship view on corporate governance and executive compensation in economies with strong political involvement, where state-appointed managers act as…

Abstract

Purpose

We take a state-stewardship view on corporate governance and executive compensation in economies with strong political involvement, where state-appointed managers act as responsible “stewards” rather than “agents” of the state.

Methodology/approach

We test this view on China and find that Chinese managers are remunerated not for maximizing equity value but for increasing the value of state-owned assets.

Findings

Managerial compensation depends on political connections and prestige, and on the firms’ contribution to political goals. These effects were attenuated since the market-oriented governance reform.

Research limitations/implications

Economic reform without reforming the human resources policies at the executive level enables the autocratic state to exert political power on corporate decision making, so as to ensure that firms’ business activities fulfill the state’s political objectives.

Practical implications

As a powerful social elite, the state-steward managers in China have the same interests as the state (the government), namely extracting rents that should adhere to the nation (which stands for the society at large or the collective private citizens).

Social implications

As China has been a communist country with a single ruling party for decades, the ideas of socialism still have a strong impact on how companies are run. The legitimacy of the elite’s privileged rights over private sectors is central to our question.

Originality/value

Chinese executive compensation stimulates not only the maximization of shareholder value but also the preservation of the state’s interests.

Details

The Political Economy of Chinese Finance
Type: Book
ISBN: 978-1-78560-957-2

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Book part
Publication date: 30 March 2017

John S. Howe and Scott O’Brien

We examine the use of relative performance evaluation (RPE), asymmetry in pay for skill/luck, and compensation benchmarking for a sample of firms involved in a spinoff…

Abstract

We examine the use of relative performance evaluation (RPE), asymmetry in pay for skill/luck, and compensation benchmarking for a sample of firms involved in a spinoff. The spinoff affects firm characteristics that influence the use of the identified compensation practices. We test for differences in the compensation practices for the pre- and post-spinoff firms. We find that RPE is used for post-spinoff CEOs, but not pre-spinoff CEOs. Post-spinoff CEOs are also paid asymmetrically for luck where they are rewarded for good luck but not punished for bad luck. Both pre- and post-spinoff CEOs receive similar levels of compensation benchmarking. The study provides additional evidence on factors that influence compensation practices. Our spinoff sample allows us to examine how compensation practices are affected by changes in firm characteristics while keeping other determinants of compensation constant (i.e., the board and, in many cases, the CEO). Our findings contribute to the understanding of how the identified compensation practices are used.

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Global Corporate Governance
Type: Book
ISBN: 978-1-78635-165-4

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Article
Publication date: 1 January 2003

FAYEZ A. ELAYAN, JAMMY S.C. LAU and THOMAS O. MEYER

Incentive‐based executive compensation is regarded as a mechanism for alleviating agency problems between executives and shareholders. Seventy‐three New Zealand (NZ…

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1003

Abstract

Incentive‐based executive compensation is regarded as a mechanism for alleviating agency problems between executives and shareholders. Seventy‐three New Zealand (NZ) listed companies are used to examine the relationship between executive incentive compensation schemes (ICS) and firm performance. The results suggest that neither compensation level nor adoption of an ICS are significantly related to returns to shareholders or ROA. However, there is a statistically significant relationship between Tobin's q and both CEO compensation and executive share ownership. Further, the evidence suggests the recent compensation disclosure requirements in NZ are not yet stringent enough to allow adequate analysis of the link between ICSs and corporate performance.

Details

Studies in Economics and Finance, vol. 21 no. 1
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 20 November 2017

Ghassen Nouajaa and Jean-Laurent Viviani

The purpose of this paper is to investigate whether CEO compensation scheme may induce some agency conflicts in the foreign exchange risk hedging policy.

Abstract

Purpose

The purpose of this paper is to investigate whether CEO compensation scheme may induce some agency conflicts in the foreign exchange risk hedging policy.

Design/methodology/approach

Residual exposure is a post-hedging variable computed as the ratio of unrealized foreign exchange risk gains/losses to international sales. The authors follow the optimal hedging theory developed by Smith and Stulz (1985). The residual foreign exchange risk exposure is a way to capture some consequences of the managerial risk aversion, whereas the compensation scheme granted to CEO reveals that of the shareholders. The authors interpret any deviation to the predictions of this theory as a mark that some agency conflicts exist.

Findings

CEO compensation (stock-options, shares and so) significantly influence the level of the residual foreign exchange risk exposure. Both in-the-money exercisable options and shares are negatively related to the residual exposure of foreign exchange risk. The authors also document that the effect of agency problems is rather contingent because shares and options have especially a negative impact when the level of foreign exchange risk is relatively high.

Originality/value

The residual FX risk exposure variable the authors promote in this paper completes the traditional proxies used to depict the corporate hedging policy such as the nominal or total fair value of currency derivatives (Davies et al., 2006), use of nominal values (Spanò, 2007), use of fair values of derivatives and the fraction of production hedged (Wang and Fan, 2011). The information that it conveys differs significantly from the one provided by traditional proxies because it captures the year-end post hedging firm’s risk profile.

Details

The Journal of Risk Finance, vol. 18 no. 5
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 11 September 2009

Liyu He, Sue Wright, Elaine Evans and Susan Crowe

The purpose of this paper is to determine what aspects of board independence, in terms of board structure and characteristics of non‐executive directors (NEDs), are…

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Abstract

Purpose

The purpose of this paper is to determine what aspects of board independence, in terms of board structure and characteristics of non‐executive directors (NEDs), are associated with effective monitoring of management, as evidenced through lower levels of earnings management.

Design/methodology/approach

This paper examines the effectiveness of board independence requirements under the 2003 Australian Stock Exchange (ASX) Principles of Good Corporate Governance and Best Practice Recommendations (POGCG) for a sample of 231 firms listed on the ASX in the financial year 2005. The associations of board composition, share ownership and compensation of NEDs with the level of earnings management are estimated. To explore the characteristics of NEDs that are important for effective monitoring, NEDs are separated into “grey” (affiliated) directors and independent directors and compensation is separated into variable and fixed components.

Findings

The results of the paper indicate a positive relation between earnings management and share ownership of NEDs, particularly that of grey directors. There is a negative relation between NED compensation and the level of earnings management, particularly the fixed compensation component for independent directors.

Practical implications

This paper is important to shareholders, academics and policy makers because it shows the type of remuneration and ownership levels for NEDs that are consistent with good corporate governance. NEDs are more effective monitors when independent directors are compensated more as a fixed amount that is not related to the firm's performance. The compensation of grey directors is not associated with the level of earnings management. On the other hand, NEDs are less effective monitors as share ownership by grey directors increases. The share ownership of independent directors is not associated with the level of earnings management. To ensure the independence of the board and enhance its ability and incentives to effectively monitor management, the paper recommends that remuneration of NEDs should be a fixed amount, and the share ownership of NEDs should be limited.

Originality/value

The findings provide guidance as to the meaning of board independence, in terms of the payments and returns that NEDs receive from a company. The results provide support for recommendation 2.1 in the ASX's POGCG that requires the majority of the board to be independent directors. The paper highlights the need for boards to be careful when choosing and rewarding NEDs.

Details

Accounting Research Journal, vol. 22 no. 2
Type: Research Article
ISSN: 1030-9616

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Article
Publication date: 16 March 2015

Kunle Akingbola and Herman A. van den Berg

This study examines the relationship between CEO compensation and patient satisfaction in Ontario, Canada. The purpose of this paper is to determine what impact hospital…

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1125

Abstract

Purpose

This study examines the relationship between CEO compensation and patient satisfaction in Ontario, Canada. The purpose of this paper is to determine what impact hospital CEO compensation has on hospital patient satisfaction.

Design/methodology/approach

The analyses in this study were based on data of 261 CEO-hospital-year observations in a sample of 103 nonprofit hospitals. A number of linear regressions were conducted, with patient satisfaction as the dependent variable and CEO compensation as the independent variable of interest. Controlling variables included hospital size, type of hospital, and frequency of adverse clinical outcomes.

Findings

CEO compensation does not significantly influence hospital patient satisfaction. Both patient satisfaction and CEO compensation appear to be driven primarily by hospital size. Patient satisfaction decreases, while CEO compensation increases, with the number of acute care beds in a hospital. In addition, CEO compensation does not even appear to moderate the influence of hospital size on patient satisfaction.

Research limitations/implications

There are several limitations to this study. First, observations of CEO-hospital-years in which annual nominal CEO compensation was below $100,000 were excluded, as they were not publicly available. Second, this research was limited to a three-year range. Third, this study related the compensation of individual CEOs to a measure of performance based on a multitude of patient satisfaction surveys. Finally, this research is restricted to not-for-profit hospitals in Ontario, Canada.

Practical implications

The findings seem to suggest that hospital directors seeking to improve patient satisfaction may find their efforts frustrated if they focus exclusively on the hospital CEO. The findings highlight the need for further research on how CEOs may, through leading and supporting those hospital clinicians and staff that interact more closely with patients, indirectly enhance patient satisfaction.

Originality/value

To the best of the authors’ knowledge, no research has examined the relationship between hospital CEO compensation and patient satisfaction. This research fills the gap and provides a basis for future research.

Details

Journal of Health Organization and Management, vol. 29 no. 1
Type: Research Article
ISSN: 1477-7266

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Book part
Publication date: 14 July 2006

Al Bento and Lourdes Ferreira White

Performance management involves budgeting, performance evaluation, and incentive compensation. This study describes a model that encompasses these three elements of…

Abstract

Performance management involves budgeting, performance evaluation, and incentive compensation. This study describes a model that encompasses these three elements of performance management. To illustrate the model, survey data were examined using path analysis. The empirical evidence supports the model, and suggests several intervening variables that mediate the direct and indirect effects of budgeting, performance evaluation, and incentives on gaming behaviors and individual performance.

Details

Advances in Management Accounting
Type: Book
ISBN: 978-1-84950-447-8

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Article
Publication date: 1 February 2006

Lisa A. Burke and Chengho Hsieh

The purpose of this paper is to develop a conceptual framework to determine the optimal balance between fixed and variable compensation costs incurred by a firm.

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7949

Abstract

Purpose

The purpose of this paper is to develop a conceptual framework to determine the optimal balance between fixed and variable compensation costs incurred by a firm.

Design/methodology/approach

In 2004 Burke and Terry used an economic framework to demonstrate how variable pay can reduce operating leverage and hence increase a firm's value. Their theme is extended to develop a conceptual framework for ascertaining the optimal balance between fixed and variable pay components.

Findings

As demonstrated with an example, the choice between fixed and variable pay affects the firm's employee productivity, operating leverage, market risk, cost of capital, and cash flows. The ultimate choice of the variable and fix compensation “mix” should meet the goal of management – maximizing the firm value, and hence the shareholders' wealth.

Practical implications

Evidence suggests there is a growing use of variable pay schemes in firms to increase employee motivation and productivity.

Originality/value

The framework allows a firm's cash flows to vary due to the changes in the variable pay component.

Details

International Journal of Productivity and Performance Management, vol. 55 no. 2
Type: Research Article
ISSN: 1741-0401

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Article
Publication date: 22 April 2000

David N. Hurtt, Jerry G. Kreuze and Sheldon A. Langsam

Significant investment dollars are now allocated to companies deemed by investors as socially responsible. This socially responsible theme contends that corporations…

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437

Abstract

Significant investment dollars are now allocated to companies deemed by investors as socially responsible. This socially responsible theme contends that corporations should be held accountable for the totality of their actions and decisions, including CEO compensation levels. This paper investigates whether CEO compensation levels are more associated with traditional performance measures for socially responsible firms than for firms deemed not socially responsible, with the assumption being that social choice firms will be more sensitive to and may attempt to align CEO compensation levels with corporate performance. Rank correlation analysis and regression results using nine performance variables for 270 firms indicated that CEO compensation levels at social choice companies were more highly associated with performance variables than those at nonsocial companies. The study results suggest that social choice companies, in addition to their other corporate good deeds, seem to include CEO compensation levels as a part of their overall corporate decision process.

Details

American Journal of Business, vol. 15 no. 1
Type: Research Article
ISSN: 1935-5181

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