Compensation transparency and managerial opportunism: a study of supplemental retirement plans

Telfer School of Management, University of Ottawa, Ontario, Canada
Strategic Management Journal (Impact Factor: 3.78). 03/2009; 30(4):405 - 423. DOI: 10.1002/smj.737

ABSTRACT Existing research on managerial compensation is based primarily on optimal contracting and managerial hegemony theories. Under the optimal contracting theory, observed compensation contracts are optimally determined, aligning the interests of managers and shareholders. Under the managerial hegemony theory, observed compensation contracts deviate from the optimum because top managers with power over boards are able to influence their own pay. I argue that the impact of managerial power over boards on managerial pay, and hence the deviation of compensation contracts from the optimum, is contingent on the transparency of managerial compensation. Within this framework, I investigate the impact of supplemental executive retirement plans (SERPs)— historically the least transparent compensation component— on opportunistic decision making. An empirical analysis based on a time series sample of CEOs of S&P/TSX60 firms provides support of the compensation transparency theory. I find that SERP benefits are primarily driven by variables proxying for CEO power over the board, whereas more transparent compensation components are primarily driven by economic factors. The results also suggest that CEOs whose SERPs are contingent on firm performance appear to reduce firm R&D expenditures as they approach retirement. Both findings provide important contributions to existing research on the impact of managerial compensation on opportunistic decisions. Copyright © 2008 John Wiley & Sons, Ltd.

  • Source
  • [Show abstract] [Hide abstract]
    ABSTRACT: Manuscript TypeEmpiricalResearch Question/IssueThis paper explores whether R&D investment has a mediating and/or moderating effect on the relationship between corporate governance and firm performance.Research Findings/InsightsThis empirical study of Chinese IT-industry listed companies during the 2007–2008 period shows that R&D investment does not moderate, but instead mediates the relationship between corporate governance and firm performance.Theoretical/Academic ImplicationsThis paper takes the perspective of technological innovation to empirically examine the effect of corporate governance on firm performance. This study makes a contribution to the literature by showing that technological innovation (i.e., R&D investment) mediates the effects of various governance mechanisms (i.e., ownership concentration, managerial compensation, and asset-debt ratio) on firm performance.Practitioner/Policy ImplicationsThe results provide important managerial implications for the practice of corporate governance in emerging economies. Companies in emerging economies can enhance technological innovation through maintaining relatively high ownership concentration, designing effective managerial compensation systems, and optimizing capital structure. In addition, emerging economies should adopt effective public policies on technological innovation to improve the relationship between corporate governance and firm performance.
    Corporate Governance An International Review 07/2014; · 1.90 Impact Factor
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: Although institutional theorists maintain that the widespread diffusion of ISO 9000 is the result of institutional forces, they have neglected the potential gains to top management in the perpetuation of the standard. Based on a long-horizon event study with control firms to detect long-term abnormal financial gains, we investigate the impact of ISO 9000 adoption on CEO compensation in the U.S. manufacturing industry from 1994 to 2006. We find that the CEOs' total cash compensation was positively adjusted when their firms received ISO 9000 certification, and they received higher-value stock options when their firms embarked on ISO 9000 certification. However, the performance of the ISO 9000 certified firms was not improved throughout this period. Our further analyses suggest that it is likely that the CEO influences the board to obtain higher compensation under an institutionalized environment. Contrary to the traditional institutional theory-based view, we argue that a highly institutionalized environment does provide political opportunities for organizational actors to garner personal advantages.
    Organization Science 11/2011; 22(6):1600-1612. · 4.34 Impact Factor

Preview (2 Sources)

1 Download
Available from