The Effect of Monitoring on CEO Compensation in a Matching Equilibrium

2018 ◽  
Vol 53 (3) ◽  
pp. 1297-1339 ◽  
Author(s):  
Pierre Chaigneau ◽  
Nicolas Sahuguet

We consider a model of chief executive officer (CEO) selection, dismissal, and retention. Firms with larger blockholder ownership monitor more; they get more information about CEO ability, which facilitates the dismissal of low-ability CEOs. These firms are matched with CEOs whose ability is more uncertain. For retention purposes, the compensation of these CEOs is more sensitive to firm value and relatively less sensitive to business conditions. Moreover, these CEOs receive lower salaries when CEO skills are sufficiently transferable. A diffusion of best monitoring practices increases competition for CEOs and raises CEO pay in all firms, including those with unchanged monitoring ability.

2015 ◽  
Vol 12 (3) ◽  
pp. 28-39 ◽  
Author(s):  
Mahdi Faghani ◽  
Reza Monem ◽  
Chew Ng

We investigate the consequences of Australia’s ‘say on pay’ regulation on the chief executive officer (CEO) compensation using recent data. We find that, for the ‘first-strike’ firms that avoided a ‘second strike’ (the treatment firms), a reduction in CEO total remuneration is positively associated with a lower level of shareholder dissent votes on the following remuneration report. We also find that, unlike control firms, the treatment firms increased the proportion of CEO’s performance-based pay in the year following the ‘first strike’ and such an increase is negatively related to a change in shareholders’ dissent level. Further, detailed descriptive analysis suggests that the ‘first-strike’ firms made relatively more frequent and larger pay reductions by reducing the level of pay in one or more components of the CEO pay


2018 ◽  
Vol 21 (2) ◽  
pp. 123-134
Author(s):  
Chiraz Ben Ali ◽  
Frédéric Teulon

This study examines the impact of board governance mechanisms on the pay of Chief Executive Officers (CEOs) using a sample of major French listed companies for the 2009–2011 period. The results show that CEO pay is negatively associated with the presence of a family CEO and positively associated with board size, busy directors, board meetings, and compensation committee independence. We provide further evidence that CEO compensation increases with firm size, and both present and past performance. Our study casts doubt on the effectiveness of formal board attributes in constraining CEO compensation.


Author(s):  
Chetna Rath ◽  
Florentina Kurniasari ◽  
Malabika Deo

Chief executive officers (CEOs) of environmental, social, and governance (ESG) firms are known to take lesser pay and engage themselves in corporate social responsibility activities to achieve the dual objective of the enhancement of firm’s performance as well as benefit for stakeholders in the long run. This study examines the role of ESG transparency in strengthening the impact of firm performance on total CEO pay in ESG firms. A panel of 67 firms for the period of 2014–2019 has been analyzed using the two-step system GMM model, with NSE Nifty 100 ESG Index as the data sample and ESG scores from Bloomberg database as a proxy for transparency. Findings reveal that environmental and governance disclosure scores have the potential to intensify the negative relationship between firm performance and CEO compensation, while social disclosure scores do not. In addition, various firm-specific, board-specific, and CEO-specific attributes have also been considered controls affecting remuneration. This paper contributes to the literature by exploring the effect of exhibiting ESG transparency and its nexus with CEO pay as well as firm performance.


2018 ◽  
Vol 53 (5) ◽  
pp. 2261-2292
Author(s):  
Luyao Pan ◽  
Xianming Zhou

In Mar. 2010, Japan’s financial regulator implemented the country’s first legislation concerning the disclosure of director compensation for named individuals. Using the first publicly available data for Japanese executives, we document direct evidence on the level, structure, and mechanisms of chief executive officer (CEO) compensation in Japan and perform a matched-sample comparison between Japan and the United States. In contrast to the findings of recent studies showing that international differentials in CEO pay have largely disappeared since the mid-2000s, our results show strikingly large differences between the Japanese and American systems that are difficult to explain by differences in conventional incentive contracts.


2019 ◽  
Vol 17 ◽  
Author(s):  
Mariette Coetzee ◽  
Magda L. Bezuidenhout

Orientation: Concerns about exorbitant executive compensation are making headlines, because executives receive lucrative packages despite state-owned enterprises (SOEs) performing poorly. It appears as if chief executive officers (CEOs) are not being held accountable for the performance of the SOEs.Research purpose: The purpose of the study was to determine whether the size and the industry of an SOE had an impact on CEO compensation packages.Motivation for the study: A greater understanding of the relationship between CEO remuneration and the size and type of industry of SOEs would assist with the standardisation of CEO remuneration and linking CEO pay to SOE performance.Research approach/design and method: A multiple regression analysis on a pooled dataset of 162 panel observations was conducted over a 9-year period. Financial data of 18 SOEs were extracted from the McGregor BFA database and the annual reports of SOEs.Main findings: The findings show that the size of an SOE does not influence the total compensation of CEOs. However, larger SOEs pay larger bonuses due to these SOEs being in a stronger financial position to offer lucrative bonuses. CEO’s remuneration was aligned within certain industries.Practical/managerial implications: The findings emphasise the need to link CEO compensation with SOE performance. Standardisation in setting CEO compensation and implementing performance contracts should be considered.Contribution/value-add: The study confirms that CEO pay is not linked to performance and not justified when considering SOE size or industry.


Author(s):  
Božo Vukoje ◽  
Vjekoslav Bobar

Chief Executive Officer (CEO) selection as a subset of personnel selection asks for different characteristic compared to a selection of other personnel. The reason for this is the polymorphic nature of the CEO role. The complexity and importance of the selection problem, call for analytical methods rather than decisions based on intuition. The multi-criteria nature and the presence of both qualitative and quantitative factors make the entire selection more complex. As such, the CEO selection is a multi-criteria decision making problem decision making problem, affected by several qualitative and quantitative, often conflicting criteria which are usually uncertain. This paper proposes a CEO selection approach based on the fuzzy decision support system developed by using JAVA technology and extent analysis method. This system is applied in a real-life case study to evaluate the most suitable person for a CEO position in information and communication (ICT) company dealing with the rating of both qualitative and quantitative criteria, and testing appropriate consistency to ensure quality of selection.


Author(s):  
Tor-Erik Bakke ◽  
Hamed Mahmudi

This article investigates the role external advice plays in the board’s determination of chief executive officer (CEO) compensation. We show that CEO incentive pay increases with the degree of compensation consultant independence using a quasi-natural experiment provided by the creation of an independent consultant after separation from an affiliated consultant. Specifically, switching to an independent consultant significantly increases the pay–performance sensitivity and relative performance evaluation of CEO contracts. Despite the benefits of independent advice, independent consultants may not be hired due to the influence of powerful CEOs or because boards already possess adequate expertise.


2020 ◽  
Vol 23 (3) ◽  
pp. 217-233
Author(s):  
María Consuelo Pucheta-Martínez ◽  
Carlos Chiva-Ortells

We explore the effect of institutional directors on Chief Executive Officer (CEO) pay (total, fixed, and variable compensation). We delve particularly into the impact of pressure-sensitive and pressure-resistant institutional directors, who, respectively, represent institutional investors who maintain and investors who do not maintain a business relationship with the firm whose board they serve on. Focusing on CEO total pay, the findings show that institutional and pressure-resistant directors on boards behave similarly, affecting CEO total pay in a nonlinear way: as the presence of institutional and pressure-resistant directors on boards increases, the monitoring hypothesis prevails, and subsequently, better corporate governance decreases CEO total pay. However, when their presence on boards exceeds a critical point, the entrenchment hypothesis holds, thereby leading to an increase in CEO total pay. Contrary to our predictions, pressure-sensitive directors do not affect CEO total pay. Regarding the CEO’s compensation structure (fixed and variable), the results suggest that institutional and pressure-resistant directors increase fixed compensation and reduce variable pay, while pressure-sensitive directors affect neither fixed nor variable compensation. This evidence supports the view that institutional directors should be considered as a heterogeneous collective. JEL CLASSIFICATION: G3, G34, M12


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