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Research on CEO Compensation Stickiness of Chinese Listed Companies
Abstract
This paper studies the stickiness of CEO compensation by verifying the existence of asymmetric relations between CEO compensation change and corporate performance in Chinese listed companies during 2006 to 2009, the results show that the marginal increase of CEO compensation in the case of corporate earnings is to be significantly greater than the marginal reduction in the case of corporate deficit, which is tantamount to say that the stickiness of CEO compensation exists. Further research finds that the stickiness of CEO compensation in Chinese listed companies has not yet demonstrated significant time-varying trends; but there is sign of increasement. We also find that the stickiness of CEO compensation can be suppressed by improving regional marketization, shareholding system reform and diversified equity of state-owned companies, supervision of government, media and general public, and matrix control strategy.
... Executive compensation stickiness is a compensation characteristic that links executive pay to company performance-when company performance rises, executive compensation increases more than it decreases when company performance declines. Extensive domestic and international research has shown that executive compensation stickiness is a phenomenon that is widely present in various companies [20][21][22]. The existence of this characteristic allows executives to receive compensation incentives when company performance is on the rise, while also providing them with some protection from penalties when company performance declines. ...
Executive compensation stickiness is a compensation characteristic that links executive pay to company performance, reflecting a tendency among compensation setters to provide generous rewards to executives and relatively fewer penalties. It can be considered an effective incentive mechanism. This paper empirically examines the impact of executive compensation stickiness on stock price crash risk using data from all A-share listed companies from 2010 to 2021. The empirical results show that executive compensation stickiness significantly mitigates stock price crash risk. Further research reveals that in companies with female CEOs, non-financial backgrounds among top executives, and low information opacity, the inhibitory effect of executive compensation stickiness on stock price crash risk is more pronounced. Mechanism tests suggest that executive compensation stickiness reduces agency costs and, thereby, suppresses stock price crash risk. This study extends the understanding of the economic consequences of executive compensation stickiness and factors influencing stock price crash risk, providing practical insights for designing compensation incentive systems for listed companies and maintaining the stability of capital markets.
... Fang (2009) took Chinese listed companies from 2001 to 2007 as a sample, and used the Change and Level model to propose for the first time that there is an asymmetric feature of executive compensation to performance sensitivity. Later, this method and conclusion were widely used, but most of them focused on the influencing factors of executive pay stickiness, such as the independence of the board of directors, the nature of equity, the power of management and other internal governance mechanisms (Xiude Chen et al. 2014;Brüggen and Zehnder 2014;Lu et al. 2015;Lei and Guo 2017), and did not study the exogenous behavior of institutional investors' distraction. ...
Based on the impact of industry extreme return on the attention of institutional investors, taking Chinese A-share listed companies from 2011 to 2020 as a sample, this paper empirically tests the relationship between institutional investors’ distraction and executive compensation stickiness based on multiple regression analysis. The study finds that institutional investors’ distraction promotes the executive compensation stickiness, which is more significant in the group of pressure-resistant institutional investors. The mechanism test finds that based on the governance effect, information effect and psychological effect, corporate external governance, stock price information content and management anxiety play a partial intermediary role between institutional investors’ distraction and executive compensation stickiness. The moderating effect finds that the level of corporate internal governance and managerial overconfidence will weaken the impact of institutional investors’ distraction on executive compensation stickiness. In addition, the distraction behavior in non-state-owned and western companies has a more significant economic impact.
This study examines the monitoring role of institutional investors in both mitigating the degree of downward-sticky CEO compensation and alleviating the undesirable effects of the sticky compensation on shareholder wealth. Particularly, we parallel the literature on “pay for performance” and institutional monitoring role to critically examine the measure of fluctuating pay-for-performance sensitivity, re-characterize the asymmetric compensation-performance link, and then capture managerial rent extraction. We find that sticky CEO compensation is significantly and negatively associated with firm value. Further, we find that institutional ownership decreases the compensation stickiness in underperforming firms and ameliorates its value-deteriorating effect.
This study examines the undesirable impact of CEO tenure on downwardly sticky pay, and the moderating effect of higher market competition on the potential adhesive connection between CEO tenure and sticky pay. We find that CEO pay stickiness intensifies as CEO tenure increases. This suggests that entrenched executives extract greater levels of baseline rents through strong exclusivity. In contrast, we find that in firms with long-tenured CEOs, higher levels of competition intensity alleviate CEO pay stickiness. These results imply that although long-tenured CEOs tend to exert a powerful influence over the pay-setting process, increased competition restrains CEOs’ rent-seeking behavior.
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