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Toward a general model for executive compensation
Journal of Management Development
Abstract
Purpose
– This paper aims to review the growing literature on the issues and variables which are impacting the determination of CEO pay for Fortune 500 and other large organizations. While many previous researchers have focused on agency theory, CEO power, market forces and board of directors governance as the most relevant issues, the authors seek to propose a general model for determining CEO pay which has a more comprehensive set of variables.
Design/methodology/approach
– The paper draws on existing literature to derive the variables for the proposed model.
Findings
– The bulk of the literature reviewed takes an Anglo‐American point‐of‐view on the best way to manage CEO pay. There is a need for a more “balanced” and broader perspective on how to motivate CEO behavior with the needs of other stakeholders.
Originality/value
– The paper provides new insights into the dynamic nature of CEO motivation and governance and by designing a general model, integrates divergent points of view into a more holistic body of knowledge.
... The US Treasury Secretary, Timothy Geithner, argued that excessive pay packages were partly to blame for the 2008 Wall Street crash and as a consequence introduced a "compensation tsar" to oversee remuneration in organisations that had received government bailouts. Geithner was also instrumental in introducing legislation giving shareholders a nonbinding vote of confidence on remuneration issues ("say on pay") and he tabled legislation to ensure the independence of remuneration committee members (Farid, Conte & Lazarus 2011). ...
... But the present study found that this driver has increased tremendously in importance and is now ranked 10th out of 24. This is aligned with the global trend of increasing and improving governance, especially remuneration governance (King 2009;Farid et al 2011;Gevers 2013;Ogedegbe & Bashiru 2014). ...
This study was conducted in 2012 and replicates Bussin and Huysamen’s (2004) work, conducted in 2003, on remuneration policies. It investigates the factors driving remuneration policy in South Africa and determines whether these factors have changed since 2003. Anonymous e-mail questionnaires were received from 131 senior company representatives. All participating companies were members of the South African Reward Association (SARA) or clients of a large remuneration consulting firm. Data were analysed using a chi-squared test and factor analysis. Results support Bussin and Huysamen’s study, which found that the two main drivers of change in policy were the retention of talented staff and the financial results of the organisation. However, three components of remuneration are receiving greater prominence than they did in 2003: governance in the organisation, merit pay and retention strategies. These findings suggest a greater shareholder expectation that pay should be linked to performance, and that pay acts as a retention strategy for critical staff.
... Although research continues to proliferate, there remains a lack of interdisciplinary consensus regarding the primary forces shaping observable patterns of executive remuneration (Nulla, 2013;Scholtz & Smit, 2012;Van Essen, Otten, & Carberry, 2012). Moreover, empirical evidence from scholars has raised doubts about whether there is a 'one-size-fits-all' approach to remuneration (Farid, Conte, & Lazarus, 2011). Nonetheless, Apanpa and Farimade (2017) contend that for companies that operate in one location or have only one line of business, it is easier to adopt 'a single one-size-fits-all' approach to compensation. ...
... Nonetheless, empirical evidence from scholars has raised doubt about whether there is a 'one-size-fits-all' approach to remuneration (Farid et al., 2011), and in defining their compensation philosophies to ensure alignment between HR strategy and peculiar local market/industry practices (Apanpa & Farimade, 2017). In theory, the level of remuneration should be determined upon the analysis of expected value creation by the managers and the decision of the proportion of that value that should be offered to those managers who contributed to generating those effects (Marcinkowska, 2014 As a result, there seems to be little consensus on the precise nature of the predictors of executive remuneration. ...
Orientation: Research on executive remuneration should be able to indicate the necessary
elements and dimensions at work when deciding on an executive’s package.
Research purpose: The purpose of this article was to review a correlation of elements as
determinants of executive remuneration.
Motivation for the study: The limited research on executive remuneration tends to focus on how executive pay varies with performance and less on the determinants of executive
remuneration.
Research design and method: A quantitative research method was used. The target population consisted of executives from 21 South African state-owned enterprises(SOEs). The research design was a cross-sectional study. A categorical multiple regression analysis was performed.
Main findings: The research results seem to suggest that there is a significant statistical
correlation between organisation size and type of industry; job function and type of industry; organisation size and job function; and the level of education and job function as a determinant of executive remuneration within the context of South African SOEs. However, the extent of the correlations between the determinants of executive remuneration is not the same.
Practical/managerial implications: The research results create awareness amongst human resources practitioners and consultants of the extent to which some of the determinants of remuneration may apply in practice.
Contribution/value-add: This study highlights the importance of probing further with the
effect of size correlation in quantitative research in the context of executive remuneration.
Keywords: job function; organisation size; industry; level of education; state-owned
enterprises.
... The US Treasury Secretary, Timothy Geithner, argued that excessive pay packages were partly to blame for the 2008 Wall Street crash and as a consequence introduced a "compensation tsar" to oversee remuneration in organisations that had received government bailouts. Geithner was also instrumental in introducing legislation giving shareholders a nonbinding vote of confidence on remuneration issues ("say on pay") and he tabled legislation to ensure the independence of remuneration committee members (Farid, Conte & Lazarus 2011). ...
... But the present study found that this driver has increased tremendously in importance and is now ranked 10th out of 24. This is aligned with the global trend of increasing and improving governance, especially remuneration governance (King 2009;Farid et al 2011;Gevers 2013;Ogedegbe & Bashiru 2014). ...
This study was conducted in 2012 and replicates Bussin and Huysamen's (2004) work, conducted in 2003, on remuneration policies. It investigates the factors driving remuneration policy in South Africa and determines whether these factors have changed since 2003. Anonymous e-mail questionnaires were received from 131 senior company representatives. All participating companies were members of the South African Reward Association (SARA) or clients of a large remuneration consulting firm. Data were analysed using a chi-squared test and factor analysis. Results support Bussin and Huysamen's study, which found that the two main drivers of change in policy were the retention of talented staff and the financial results of the organisation. However, three components of remuneration are receiving greater prominence than they did in 2003: governance in the organisation, merit pay and retention strategies. These findings suggest a greater shareholder expectation that pay should be linked to performance, and that pay acts as a retention strategy for critical staff.
... CEO compensation is under the spotlight more than ever before, particularly, after the recent financial crises (Albert and Valerie, 2018;Farid et al., 2011). The main criticism of CEO compensation is that, CEOs receive high compensation, both in absolute terms and in comparison with compensation received by employees lower down the hierarchy (Ball et al., 2018;Yatim, 2012). ...
CEO compensation and performance evaluation has become a highly contention issue in the business world. Several factors appear to be behind the image problem but the uppermost is the dramatic increase in CEO reward in recent decade. Wage efficiency theory argues higher compensation would increase the performance but on the evaluation of CEO performance many issues are faced in selecting performance measurement indicators. The purpose of this paper is to extend discussions in evaluating the CEO performance in research domain. Based on agency theory, the model of this research is developed. The cross-sectional data was collected by questionnaires. By applying regression model, this study revealed that independent directors and female directors on the use of non-financial measures in CEO performance evaluation, are found to be positively associated with the use of non-financial measures which reinforce the findings of prior studies in regarding their influence on the use of non-financial measures in CEO and corporate performance evaluation. The ratio of female directors on the BOD is significantly and positively associated with the use of non-financial measures in the evaluation of CEO performance. This study contributes economically, socially and politically.
... While there is an extensive body of literature on executive compensation examining the determinants of chief executive officer (CEO) compensation (i.e., Core, Holthausen, & Larcker, 1999;Tosi, Werner, Katz, & Gomez-Mejia, 2000 for a meta-analysis; Farid, Conte, & Lazarus, 2011 for an extensive literature review), to the best to our knowledge, no empirical evidence for the compensation of CAEs exists. Thus, we derive a theoretical framework from the CEO literature to investigate the CAE compensation. ...
This paper examines the different factors which impact the compensation level of chief audit executives (CAE) and sheds light on often unobservable and, therefore, opaque drivers of CAE remuneration. An ordered logistic regression is used to analyze the effects of internal audit function (IAF) competences, stakeholder relationships, and firm complexity on the CAE compensation using survey data from 212 CAEs from a broad spectrum of companies and industries. The results of the study identify IAF competence and independence as fundamental drivers of CAE compensation and provide evidence that firm complexity in terms of foreign sales, listing status and need for monitoring constitute additional salary determinants related to the IAF environment. Our results are based on questionnaire data and subject to a possible response bias as they rely in part on the participants’ assessment of a given situation. This paper provides a benchmark for CAE compensation levels in Austria, Germany and Switzerland and offers insights on different company and IAF inherent factors that can be associated with varying salary outcomes. This study is the first to investigate the factors driving the overall compensation level of CAEs and by providing empirical evidence regarding determinants of CAE compensation.
... The processes of structuring top management compensation packages in transition economies does not necessarily follow all theoretical expectations established within Anglo-American system of corporate governance, especially with respect to equity-based compensation in the form of stock options that has caused rapid growth of the overall amounts received by top executives in such countries (Farid, Conte & Lazarus, 2011). Furthermore, Beer & Katz (2003) found that the STRATEGIC MANAGEMENT, Vol. ...
Executive remuneration is considered among most important mechanisms to align interests of managers and company owners. This paper examines the role of company ownership as a determinant of top management compensation. The aim of the research was to determine the impact of ownership origin, domestic or foreign, on top management remuneration practices in a post-transition economy country. The research is based on a survey of top management remuneration practices among 60 medium and large sized Croatian companies. Research results indicate that foreign owned companies provide more annual bonuses, long-term compensation and additional benefits to higher percentages of top managers than domestically owned companies. Companies with domestic owners provide annual bonuses at higher ratios of base pay compared to foreign owned companies and position managerial pay at higher levels relative to comparative firms in the sector with foreign owners. Top managers, investors and firm owners should be aware that in post-transition economies compensation practices greatly differ between domestic and foreign owned companies.
... Bertrand and Hallock (2001) show that the total compensation of men and women for senior management positions mainly correlates with age and experience factors and the size of the company. Research by Farid et al. (2011) indicates that, because of bonuses and other incentive compensation plans, CEO income varies according to the performance of the company. From the meta-analysis conducted by Tosi et al. (2000) company size accounts for over 40% of the variance in CEO pay. ...
Purpose
Do female CEOs face a compensation gap? This research examines whether gender affects the total compensation of today’s CEOs, and whether it moderates ten factors influencing their total compensation.
Design methodology
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 to 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 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 and 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.
Keywords: CEO, Compensation, Moderation Analysis, Large Company, Gender Differences
Paper type: Research paper
... Bertrand and Hallock (2001) show that the total compensation of men and women for senior management positions mainly correlates with age and experience factors and the size of the company. Research by Farid et al. (2011) indicates that, because of bonuses and other incentive compensation plans, CEO income varies according to the performance of the company. From the meta-analysis conducted by Tosi et al. (2000), company size accounts for over 40 percent of the variance in CEO pay. ...
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.
... Bertrand and Hallock (2001) show that the total compensation of men and women for senior management positions mainly correlates with age and experience factors and the size of the company. Research by Farid et al. (2011) indicates that, because of bonuses and other incentive compensation plans, CEO income varies according to the performance of the company. From the meta-analysis conducted by Tosi et al. (2000) company size accounts for over 40% of the variance in CEO pay. ...
This paper studies gender differences in total compensation among Fortune 1000 CEOs based on a matched panel data set comprising all-female CEOs and their matched counterpart of male CEOs for the years 2013-2016. However, previous research uses different methods of calculating CEO compensation: total pay, salary and bonus (Bugeja et al, 2012), base pay plus annual bonus (Adams et al, 2007), total current pay (the sum of salary, bonus, other annual pay), the value of stock options granted in the current year, other annual pay and value of granted options (Bertrand and Hallock, 2001). Tosi et al, (2000) highlight that remarkably divergent results characterize previous studies on relationship between CEOs compensation and firm size. The authors emphasize organizational size as an important determinant of total CEO pay. Moreover, Mohan (2014) highlight how, although executive pay has been studied with respect to various theories, the impact of gender on CEO pay levels is under-researched. Three notable exceptions relate to the following researches: the findings of Mohan and Ruggiero (2007) indicate that women are under-compensated; those of Adams et al. (2007) highlight how women are not as highly compensated as men before becoming CEO, but the few who reach the position of CEO do receive similar compensation to men; Hill et al. (2015) suggest that female CEOs benefit from their minority status to receive higher compensation than male CEOs. The results of these studies are contradictory regarding the influence of gender on compensation. With the goal of contributing to cumulative knowledge development in this area, the present research examines whether gender might affect or moderate the antecedents of total compensation, and whether Fortune 1000 female CEOs are indeed facing a compensation gap. Thus, this research fills an empirical gap by compiling the characteristics of female CEOs which are not featured in Fortune 1000 compared to a matched sample of male CEOs. Using this new data base, this research seeks to identify whether gender moderates the effects of classical antecedents of total compensation. Arguably, this is therefore one of the first papers to study gender differences in total compensation of Fortune 1000 CEOs using a matched sample technique based. This paper differs from previous literature in five significant ways. Firstly, male and female CEOs are matched based upon company rankings and the level of education of the CEO. Secondly, an extensive set of data was compiled of detailed characteristics of both the company and the CEO. Thirdly, owing to the increasing number of female CEOs, this study is based on a larger number of female CEOs than previous research (for example: a sample of 17 female CEOs was used in the study by Bertrand and Hallock, 2001). Fourthly, following the literature on CEO compensation, a comprehensive measure of total compensation was used which combines short-term and long-term compensation. And lastly, as in the study of Adams et al. (2007), this research uses many years’ worth of data (from 2013 to 2016) to reduce the effect of yearly fluctuation of total compensation, with this data base being moreover the most recent data available. Section 1 reviews the existing literature on CEO compensation and presents the hypotheses. Section 2 presents the research methodology. In section 3, a moderation analysis is presented to identify those factors influencing total compensation which are moderated by gender. In the conclusion section, findings and their limitations are discussed, as well as potential new avenues for research offered by further longitudinal studies.
... Hal ini berarti kepemilikan institusional yang besar akan melemahkan kekuatan manajemen puncak untuk mendapatkan remunerasi yang besar. Farid, et al. (2011) Ho, et al. (2004). ...
This study examined the impact of the Firm characteristics and the investmen opportunity set against executive remuneration. This study also explained the role of institutional ownership in moderating the relationship between firm size, sales and growth of the cash compensation. Data was taken from a listed company in Indonesia Stock Exchange 2011-2014 which has an executive compensation data in Swa Magazine survey.The compensation data are taken from Survey conduct by Swa Magazines, not directly from annual and financial reports. This is because very few Indonesian public companies that explicitly stated their remunerations in Annual Reports or Financial Reports. Investor could have additional information to invest in stock market. Data were analyzed using OLS Regression. A Company is fundamentally good and a trusted is a company that has an assets, sales, and high managerial compensation, but has a majority of institutional ownership of the total ownership structure. This study used institutional ownership as a moderating variable not managerial ownership such as in previous studies.That wascaused by the capital market condition in Indonesia as the concentration of institutional ownership is higher than the market or management. The results showed that the firm characteristics has an effectto the company’s executive remuneration. Furthermore, institutional ownership has a negative moderating effect on that relationship. That results wasaccordance with the Power Theory that the high institutional ownership may limit the amount of executive compensation.
... Consequently Corporate Governance deals with ways in which suppliers of finance to corporations assure themselves of getting a return on investment - Shleifer and Vishny (1997), Pistor (2006), Meharey (2006), Fox and Heller (2006), Meier et al (2011:257), Talamo (2011:232) as well as Demirbas and Yukhanaev (2011:445). The sole shareholder view has been heavily criticised as it is deemed to be fatally flawed from the perspective of ethical business practice -Ball (2001), Baker (2001), Emeliani (2001), Emeliani and Stec (2002:95), Lee and Chen (2011:252) and Farid et al (2011). In fact number of new influential stakeholders firms is constantly on the rise involving groups that gained importance only in recent decades such as environmentalists, venture capitalists and social responsibility groups -Berman et al (1999), Kenyon and Vakola (2003), Bhattacharya et al (2009) and Grinstein and Goldman (2011:568). ...
The Role of Institutional Shareholders in Corporate Governance is quite controversial. There however appear to be a global consensus that Institutional Shareholders have ability to promote corporate governance in companies they have invested in, because of the following; (1) they normally have larger block of shares and therefore directors are more amenable to their demands; (2) they are likely to enjoy economies of scales in obtaining pertinent information from the number of portfolios they hold substantial shares and therefore significantly reduce the costs of obtaining information; and (3) institutional investors attract indirect monitoring as more analysts are attracted to evaluate firms which attract institutional shareholders and therefore able to indirectly access expert input. Institutional shareholders in Malawi comprise of pension funds, insurance companies, banks, specialised institutional investors and various financial institutions. Their role in matters of corporate governance in Malawi is likely to increase because of the enactment of Financial Services Act 2010 as well as Pension Act 2011. The results of this independent study however demonstrates that Institutional Shareholders of TNM Limited have demonstrated little effort to undertake corporate governance issues of the company primarily because of vested interest in insider deals which can yield more income when compared to dividend. There is a conflict of interest to monitor the actions of the board of directors as the directors are directed by the institutional shareholders to undertake specific transactions. Hence directors cannot be accountable to the institutional shareholders. The resultant could be lower dividends for the non-controlling (minority) interests who will find it not worthwhile to buy or hold on to TNM Shares because of low returns. The Malawi Stock Market is likely to be illiquid due to low interest from the general public to undertake calculated risk on the TNM Shares. This is likely to have spillage effect on all other shares traded on the Malawi Stock Exchange if similar trend is observed. The Institute of Directors in Malawi and National Corporate Governance Review Committee should undertake an exercise of coming up with the code specific to the institutional shareholders in Malawi to address the current weaknesses.
The article reveals the model of executive compensations in Russian company operating in the industry of ferrous and non-ferrous metals scrap and the ways of digitization and automation of the business process of calculating material remuneration. The purpose of the article is to suggest for Russian companies an appropriate model of executive compensations with possibility of digitization by means of information technologies. The ways of digitization are discussed. Grouping and pyramid of key performance indicators of managers in the company are proposed in the article. The examples of mapping key indicators for managers of different departments of the company are given in the article and the method of their calculation for a specific company is given. The methodic recommendations for top managers motivation are adopted to specific features appropriate to Russian industry of ferrous and non-ferrous metals scrap.
Purpose
The purpose of this paper is to understand the effects of influence and reciprocity as elements in the determination of executive compensation.
Design/methodology/approach
A purposive sample was drawn, which comprised 13 respondents chosen for their expertise relating to the determination of executive compensation in state-owned enterprises. A semi-structured interview guide was used as the data-gathering instrument. A thematic analysis technique was used for data analysis.
Findings
The findings in this study identified three themes resorting under influence as crucial in the process of determining executive compensation, namely an executive’s social capital, intellectual capital and social comparison. Two major themes emerged under reciprocity, namely the pay-performance relationship and role complexity. Lastly, the political-symbolic role emerged as the main theme that described the relationship between influence and reciprocity.
Practical implications
The findings provide a more detailed description of the process involved in determining executive compensation in state-owned enterprises.
Originality/value
There has been limited if any, empirical study on the process involved in setting executive compensation. The limited focus has always been on accounting measures. Incorporating the socio-psychological view attempts to provide a more comprehensive and conclusive explanation of the process of determining executive pay in theory and practice.
The study aimed at investigating the relation between different types of ownership structures and corporate financial performance. The study sample was 42 companies from all sectors listed in Bahrain Bourse in the period of 2007-2011. Different dimensions of ownership structure were put under scope and two different measurements of financial performance were used (Tobin’s Q and ROA) evaluate the different results from using each one of them, which will help in justifying the conflicting results found by previous studies. Another objective of this study was to explore the patterns of ownership structure found in Bahraini market. It was found that institutional ownership is the most common type of ownership in Bahrain Bourse. The study’s results were conflicting regarding the effect of ownership structure on financial performance using both measurements of performance. It was also found that ROA represents financial performance more that T’Q.
Executive attributes and group decision making effects are explored in the determination of executive compensation. A purposive sample was drawn, which comprised 20 respondents chosen for their expertise relating to executive remuneration in South African state-owned enterprises (SOEs). The study was carried out by conducting primary data collection through one-to-one interviews. Thematic analysis technique was utilised for data analysis. Findings in this study describe executive compensation as a fit between executive attributes and organisational strategic objectives, and multi-perspective engagement of all critical stakeholders of the organisation which includes internal and external sources.
Relying on institutional theory, agency rationale, and environmental management research, we hypothesize that, in polluting industries, good environmental performance increases CEO pay; that environmental governance mechanisms strengthen this linkage; that pollution prevention strategies affect executive compensation more than end-of-pipe pollution control; and that long-term pay increases pollution prevention success. Using longitudinal data on 469 U.S. firms, we found support for three hypotheses. Contrary to our expectations, firms with an explicit environmental pay policy and an environmental committee do not reward environmental strategies more than those without such structures, suggesting that these mechanisms play a merely symbolic role.
We create a taxonomy of hybrid governance forms and develop a formal theory that predicts when a given hybrid form will be efficient. Our model is unique in that we consider cross-task synergies in a multitask principal-agent model, where hybrid forms result as principals try to motivate cooperation among agents indirectly through incentives, ownership, and formal authority. We conclude with a discussion of other mechanisms that might also help us understand and predict hybrid governance forms.
The average pay of a chief executive officer (CEO) in a top U.S. firm has increased six-fold in the last three decades. Simultaneously, the composition of pay has moved away from salary-based and increasingly toward performance-based compensation in the form of stock grants and stock option grants. This has strengthened the link between CEO pay and firm performance. Anecdotal evidence on the recent corporate fraud scandals suggests that some incentive problems remain unsolved. However, the academic literature reviewed in this article concludes that changes in market characteristics and the economic environment can partly explain the increase in pay and sensitivity of pay. A market-driven improvement in shareholders? power, together with recent regulatory efforts of corporate governance practices, seems to have produced a healthier corporate sector in which high salaries are not necessarily a sign of entrenchment and inappropriate incentives for executives.
This paper considers some developments within Russian privatized industrial firms 1992-94 through the lens of Stakeholder-Agency Theory (SAT). Although it has its own shortcomings and weaknesses, SAT, unlike the traditional financial version of Agency Theory, at least contemplates the possibility of a transitional period during which enterprise governance structures can evolve. It is by now widely recognised that in the middle of deep economic crisis, the Russian economy is too volatile for longitudinal studies of formally structured samples of firms over a period of time. In any case, SAT is at a stage of development that has not yet yielded detailed predictions for scientific testing. Yet surveys of recently privatized firms in Russia do provide empirical data away from the origins of SAT, and it is argued that this fresh data suggests new research propositions that can hopefully lead to more theoretical refinement and ultimately testing. At the very least, SAT can be used as a heuristic device, capable of providing a way of looking at complex Russian developments in a structured way. A process of Russian privatization through management - employee buy-outs involving giveaway distributions of shares has secured the compliance of the two main groups of enterprise stakeholders who could have prevented the withdrawal of the State from the governance of industrial enterprises, but has not yet produced a form of corporate governance structure that is likely to survive in the long term without State protection. In the longer term, international competitiveness can only be secured in Russia through investment in new products and processes, and the inadequacies of managers and other employees as sources of investable funds mean that incumbents must generate a more welcoming climate for outside investors. Even after such a short period since privatization and in the middle of a deep economic crisis, some enterprises are already favouring more efficient governance structures in a way consistent with SAT.
This article reformulates the problem of corporate governance through a shift of analytic focus, away from the problems of securing the interests of remote owners, to an understanding of processes of accountability and their effects, both objective and subjective, within Anglo-American systems of corporate governance. In place of the essentialist assumptions about human nature upon which both agency theorists and their organizational critics build, processes of accountability are instead held to be themselves constitutive of subjectivity. A distinction is drawn between different processes and practices of accountability in terms of either their 'individualizing' or 'socializing' effects. Individualizing effects, which are associated with the operation of market mechanisms and formal hierarchical accountability, involve the production and reproduction of a sense of self as singular and solitary within only an external and instrumental relationship to others. In contrast, socializing forms of accountability, associated with face-to-face accountability between people of relatively equal power; constitute a sense of the interdependence of self and other, both instrumental and moral. The article explores the complex interaction of these effects in the context of Anglo-American systems of corporate governance. The article concludes by offering a fourfold typology of the combinatory potentials of individualizing and socializing effects.
Executive compensation has long attracted a great deal of attention from financial economists. Indeed, the increase in academic papers on the subject of CEO compensation during the 1990s seems to have outpaced even the remarkable increase in CEO pay itself during this period (Murphy, 1999). Much research has focused on how executive compensation schemes can help alleviate the agency problem in publicly traded companies. To understand adequately the landscape of executive compensation, however, one must recognize that the design of compensation arrangements is also partly a product of this same agency problem.
Executive Overview
Critics of U.S. corporate governance claim that public company (a) CEOs are overpaid, (b) CEOs are not paid for performance, and (c) boards do a poor job of compensating and monitoring CEOs. In this paper, I argue that the critics are wrong. While corporate governance and CEO pay are not perfect, a great deal of evidence suggests that CEO pay is largely determined by market forces. CEOs have been affected by the same forces that have increased income inequality. They have not done better than several similar groups. (In fact, average CEO pay declined in real terms from 2000 to 2006.) CEOs are strongly paid for performance. And boards do monitor CEOs. CEO tenures are lower than they have been since tenures began to be measured in the 1970s; CEO turnover is more closely tied to stock performance than it has been since turnover began to be studied in the 1970s. Increased transparency for CEO pay (required by the SEC), increased shareholder activism, and the increased prevalence of majority voting in director elections should further reduce any remaining unwise compensation practices. More regulation, such as the proposed “Say on Pay” bill to mandate a shareholder vote on executive compensation, is likely to impose costs with little additional benefit.
A common view is that there is little correlation between firm performance and CEO pay. Using a new fifteen-year panel data set of CEOs in the largest, publicly traded U. S. companies, we document a strong relationship between firm performance and CEO compensation. This relationship is generated almost entirely by changes in the value of CEO holdings of stock and stock options. In addition, we show that both the level of CEO compensation and the sensitivity of compensation to firm performance have risen dramatically since 1980, largely because of increases in stock option grants.
The Second Edition of this classic work, first published in 1981 and an international bestseller, explores the differences in thinking and social action that exist among members of more than 50 modern nations. Geert Hofstede argues that people carry "mental programs" which are developed in the family in early childhood and reinforced in schools and organizations, and that these programs contain components of national culture. They are expressed most clearly in the different values that predominate among people from different countries. Geert Hofstede has completely rewritten, revised and updated Cultures Consequences for the twenty-first century, he has broadened the book's cross-disciplinary appeal, expanded the coverage of countries examined from 40 to more than 50, reformulated his arguments and a large amount of new literature has been included. The book is structured around five major dimensions: power distance; uncertainty avoidance; individualism versus collectivism; masculinity versus femininity; and long term versus short-term orientation. --Publisher.
American-led globalization has enabled the third great powershift of the last five hundred years—the “rise of the rest” following on the rise of the West and then the rise of the US as the dominant power in the West.
When China, India, Brazil, Turkey and the rest sit at the table of global power with the West what will the world order look like? Will it be post-American? Will it be culturally non-Western, but play by the same rules of an open international order laid down by the American's after World War II?
In the following pages, leading American and Asian intellectuals ponder these questions.
The 2008 Presidential Address presents the theory of ethical perspective, an identity theory of moral psychology designed to detect the psychological influences on moral choice. Part 1 treats findings on altruism and genocide as an analytical lens through which we can gain insight into political and moral behavior. Part 2 describes moral psychology as a field, presenting a new and broader conceptualization for the discipline. Part 3 outlines an identity theory of moral choice that focuses on the critical role of the ethical perspective, to suggest how an empirically based theory of moral choice looks in practice. Part 4 concentrates on the basic assumptions underlying the theory of ethical perspective. It presents empirical evidence that supports this theoretical framework, from fields as diverse as neuroscience and primatology to child development and linguistics, thus demonstrating political psychology's important links to other disciplines. In addition to presenting a new theory of moral psychology, designed to fill an important gap in the literature on ethics and moral choice, the Address treats studies of altruism and genocide as an illustration of research that reveals broader insight into the nature of political psychology as a discipline.
P rofessor Steven Kaplan and I have had a spir-ited public conversation about CEO compen-sation and the responsibilities of the business scholar to society (Kaplan, 2008a; Walsh, 2008; Kaplan, 2008b). We differ in our assessments of whether or not CEOs are overpaid, paid for per-formance, and dismissed for poor performance; we also hold very different views of our professional responsibilities. I am grateful for the opportunity to offer a few words in response to Professor Kaplan's most recent remarks. The key words here are "few words." I am bound by the rules of debate. These kinds of conversations cannot go on for-ever. Indeed, the rules say that the first author has the last word. I am able to respond Professor Kaplan only because I offered new data in my essay. That makes me something of a first author too. I can respond to his comments about my empirical research, and no more. There are three issues in play. Are CEOs Highly Paid? W e both agree that CEOs are highly paid. As Professor Kaplan said, "This is not in dis-pute" (2008b, p. 29). Unfortunately, our to-tal agreement notwithstanding, we still have a problem. It turns out that I made a mistake when I shared some data to illustrate just how much money these executives take home. I collected data on the CEOs of the 1,000 largest public firms in the United States (ranked by sales) in 2005 and reported that they earned 8.90 billion) and Bolivia and Jamaica (tied with 9,025 million; their firms' total sales were $12,745,140 million. Di-viding one by the other gives us 0.0007 or 0.07%. I have no idea how .07% turned into 7% in the final draft, but it did. Nor do I know how I missed this mistake. I knew that Bebchuk and Grinstein (2005), for example, reported that the top five executives in their sample of public companies a few years earlier were paid 9.8% of their firms' aggregate earnings. I should have seen that no one in that group could claim 7% of sales on average. 1 I am glad to be able to set the record straight here.
Boardroom reward continues to attract controversy, despite the structural changes in corporate governance arrangements over the past decade. This study responds to Pettigrew's (1992) call to eschew over-ambitious attempts to demonstrate causality in the area of executive management and firm performance, in favour of redressing the overwhelmingly prescriptive bias in the literature. A simple but important task is to 'begin to provide some basic descriptive findings about boards and their directors', and open up 'the black box of board behaviour'- in this case, that of board remuneration committees. Interpretations of comparative market signals play a part in deliberations between the leading actors responsible for determining executive directors' salary, bonuses and other emoluments. But the position is more deeply textured than the reified influence of (global) market forces sometimes implied in the normative literature. The study reported, based on qualitative interviews, taps in to the nuances of decision taking in respect of boardroom reward management, including remuneration committee members' reactions to corporate governance reforms. Such initiatives locate non-executive directors in the role of intermediaries in the principal-agent relationship, explicitly assigned to resolve the conflict of interest inherent in boardroom remuneration systems, while simultaneously they are expected to play a team role as board members responsible for the overall strategy and operation of the company. The study is indicative: an attempt to open up research questions around the context and process of boardroom reward management that earlier analyses may have ignored or overlooked. Copyright Blackwell Publishing Ltd 2005.
This paper considers some developments within Russian privatized industrial firms 1992–94 through the lens of Stakeholder-Agency Theory (SAT). Although it has its own shortcomings and weaknesses, SAT, unlike the traditional financial version of Agency Theory, at least contemplates the possibility of a transitional period during which enterprise governance structures can evolve.
It is by now widely recognised that in the middle of deep economic crisis, the Russian economy is too volatile for longitudinal studies of formally structured samples of firms over a period of time. In any case, SAT is at a stage of development that has not yet yielded detailed predictions for scientific testing. Yet surveys of recently privatized firms in Russia do provide empirical data away from the origins of SAT, and it is argued that this fresh data suggests new research propositions that can hopefully lead to more theoretical refinement and ultimately testing. At the very least, SAT can be used as a heuristic device, capable of providing a way of looking at complex Russian developments in a structured way.
A process of Russian privatization through management–employee buy-outs involving giveaway distributions of shares has secured the compliance of the two main groups of enterprise stakeholders who could have prevented the withdrawal of the State from the governance of industrial enterprises, but has not yet produced a form of corporate governance structure that is likely to survive in the long term without State protection.
In the longer term, international competitiveness can only be secured in Russia through investment in new products and processes, and the inadequacies of managers and other employees as sources of investable funds mean that incumbents must generate a more welcoming climate for outside investors. Even after such a short period since privatization and in the middle of a deep economic crisis, some enterprises are already favouring more efficient governance structures in a way consistent with SAT.
1st ed. Obsahuje rejstřík
Largely as a result of failures at Enron, WorldCom, Tyco, and other prominent American companies, U.S. corporate governance practices have come under attack. These much publicized failures and the resulting popular outcry have served as catalysts for legislative and regulatory changes that include the Sarbanes‐Oxley Act of 2002 and new governance guidelines from the NYSE and NASDAQ. But is the U.S. corporate governance system really as bad as critics suggest? And will the recent legislative and regulatory changes lead to a more effective system?
The authors begin by noting that the broad evidence is not consistent with a failed U.S. governance system. During the past two decades, the U.S. economy and stock market have performed well both on an absolute basis and relative to other countries, even in the wake of the corporate scandals in 2001. Moreover, the most notable changes in U.S. corporate governance in the 1980s and 1990s‐including the institutionalization of U.S. share‐holders and the dramatic increase in equity‐based pay‐have served mainly (though not always) to strengthen the accountability of U.S. managers to their shareholders.
The authors' message, then, is that while parts of the U.S. corporate governance system gave way under the exceptional strain created by the bull market of the 1990s, the overall system‐which includes corrective market forces as well as oversight by the public and government‐has reacted quickly and decisively to address its weaknesses. The net effect of the recent legislative and regulatory changes has been to make a good governance system an even better one. But, as the authors caution, perhaps the greatest risk now facing the U.S. financial market system (of which corporate governance is a critical part) is that of overregulation.
A common view is that there is little correlation between firm performance and CEO pay. Using a new fifteen-year panel data set of CEOs in the largest, publicly traded U.S. companies, we document a strong relationship between firm performance and CEO compensation. This relationship is generated almost entirely by changes in the value of CEO holdings of stock and stock options. In addition, we show that both the level of CEO compensation and the sensitivity of compensation to firm performance have risen dramatically since 1980, largely because of increases in stock option grants. © 2000 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
Today's critics of corporate boardrooms have plenty of ammunition. The two crucial responsibilities of boards-oversight of long-term company strategy and the selection, evaluation, and compensation of top management--were reduced to damage control during the 1980s. Walter Salmon, a longtime director, notes that while boards have improved since he began serving on them in 1961, they haven't kept pace with the need for real change. Based on over 30 years of boardroom experience, Salmon recommends against government reform of board practices. But he does prescribe a series of incremental changes as a remedy. To begin with, he suggests limiting the size of boards and increasing the number of outside directors on them. In fact, according to Salmon, only three insiders belong on a board: the CEO, the COO, and the CFO. Changing how committees function is also necessary for gearing up today's boards. The audit committee, for example, can periodically review "high-exposure areas" of a business, perhaps helping to prevent embarrassing drops in future profits. Compensation committees can structure incentive compensation for executives to emphasize long-term rather than short-term performance. And nominating committees should be responsible for finding new, independent directors--not the CEO. In general, boards as a whole must spot problems early and blow the whistle, exercising what Salmon calls, "constructive dissatisfaction." On a revitalized board, directors have enough confidence in the process to vigorously challenge one another, including the company's chief executive.
Despite the widespread view from Berle and Means (1932) onward that ownership of firms in increasingly separated from managerial control of those firms, almost no time series research exists to address this issue. Using the earliest available source on ownership for a large cross-section of US firms, we compare managerial ownership and other firm characteristics for nearly the universe of 1,500 exchange-listed firms in 1935 with 4,200 exchange-listed firms today.
We document that ownership by officers and directors of publicly traded firms is on average higher today than earlier in the century. Managerial ownership has risen from 13 percent for the universe of exchange-listed corporations in 1935, the earliest year for which such data exist, to 21 percent in 1995. We examine in detail the robustness of the increase and explore hypotheses to explain it. Higher managerial ownership has not substituted for alternative corporate governance mechanisms. Lower volatility and greater hedging opportunities associated with the development of financial markets appear to be important factors explaining the increase in managerial ownership. Copyright The American Finance Association 1999.
Schumer's ‘Shareholder Bill of Rights Act of
- S M Bainbridge
Getting a say on executive pay
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- E Etheridge
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Schumer's shareholder bill misses the mark”
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