Compensation committees: independence and firm performance

2015 ◽  
Vol 42 (1) ◽  
pp. 23-33 ◽  
Author(s):  
Sharon Kay Lee ◽  
William Bosworth ◽  
Franklin Kudo
Keyword(s):  
Firm Performance ◽  
Shareholder Wealth ◽  
Audit Committees ◽  
Content Type ◽  
Wealth Maximization ◽  
Classified Boards ◽  
The Board Of Directors ◽  
Shareholder Wealth Maximization ◽  
Under Performing ◽  
Compensation Committees

Purpose – Recently all major stock exchanges issued a requirement that listed companies have 100 percent independence on audit committees of the board of directors but now the focus has turned to compensation committees. Does 100 percent independence on compensation committees make a difference in firm performance? The paper aims to discuss these issues. Design/methodology/approach – Only 1 percent of the S & P 1,500 firms are not in compliance with the new 100 percent independence requirement for compensation committees. This presents an opportunity to examine characteristics of these firms and if this noncompliance may harm firm performance. Industry-adjusted ROA and Tobin’s Q measures are collected as well as firm size, debt ratios, and the presence of a classified board. Findings – Findings are as follows: S & P 500 firms with lower levels of debt, have classified board, but do not perform significantly worse than firms in compliance in the same industry; mid-cap firms with debt levels similar to complying firms, have classified boards, and perform significantly worse, and lastly, small-cap firms with lower levels of debt, have classified boards, and perform significantly worse. Research limitations/implications – Results imply that non-complying mid-cap and small-cap firms may be protecting under-performing management through maintaining classified boards, low levels of debt to avoid scrutiny of the debt markets, and less objectivity (i.e. overall and committee independence) on boards. Originality/value – Existing corporate governance literature provides evidence that overall board independence may promote shareholder wealth maximization. The latest focus regarding independence has recently been on compensation committees. Should independence on compensation committees matter to shareholders? It is appears that noncompliance should matter in the case of small- and mid-cap firms.

scholarly journals Conflict-induced forced CEO turnover and firm performance

2018 ◽  
Vol 44 (9) ◽  
pp. 1134-1154
Author(s):  
Kuntara Pukthuanthong ◽  
Saif Ullah ◽  
Thomas J. Walker ◽  
Jing Zhang
Keyword(s):  
Firm Performance ◽  
Univariate Analysis ◽  
Ceo Turnover ◽  
Main Role ◽  
Corporate Boards ◽  
Firm Characteristics ◽  
Stock Performance ◽  
Content Type ◽  
Strategic Direction ◽  
The Board Of Directors

Purpose The purpose of this paper is to examine operational and stock performance changes around forced CEO turnovers caused by conflicts between corporate boards and CEOs over the strategic direction of the firm. In addition, the authors investigate whether changes in performance can be explained by board, CEO, or firm characteristics. Design/methodology/approach The authors apply propensity score matching to choose matching firms that do not forced CEO turnover but have similar characteristics with the sample firms. The authors compare their operating and stock performances. The authors apply both univariate analysis and multivariate regression analyses. Findings The authors find that the CEO turnovers caused by conflicts between corporate boards and CEOs over the strategic direction of the firms tend to be preceded by significant declines in a firm’s operating and stock performance and that corporate performance improves after turnovers. In addition, the authors find that an increase in long-term incentives and firm size and a decrease in turnover improve firm performance. Originality/value While the existing corporate governance literature emphasizes oversight as the main role of the board of directors and identifies the CEO as the leader who sets the strategic direction of the firm, in cases of conflict-induced forced CEO turnover, it is the board that sets the strategic direction. This paper is the first to provide evidence regarding the implications of conflict-induced forced CEO turnovers.

scholarly journals Shareholder Wealth Maximization Under Leveraged Buyouts

2011 ◽  
Vol 4 (2) ◽  
pp. 48
Author(s):  
William J. Bertin ◽  
Khalil M. Torabzadeh
Keyword(s):  
Shareholder Wealth ◽  
Leveraged Buyouts ◽  
Excess Returns ◽  
Leveraged Buyout ◽  
Wealth Maximization ◽  
Shareholder Wealth Maximization ◽  
The Impact

This paper examines the possible excess returns to stockholders arising from leveraged buyout transactions in an effort to determine whether or not such transactions are consistent with shareholder wealth maximization. In addition, the excess returns generated through leveraged buyouts are compared to those associated with typical, non-leveraged acquisitions. The implications of these comparisons are discussed with a special emphasis on the impact of leveraged buyouts upon investors wealth. The major finding of this study is that shareholder wealth is increased, but not necessarily maximized, under leveraged buyouts.

scholarly journals Could the impaired intention of ethical investment be recovered?

2016 ◽  
Vol 22 (5) ◽  
pp. 736-750 ◽  
Author(s):  
Chiung-Yao Huang ◽  
Yu-Cheng Lin ◽  
Chiung-Hui Chen
Keyword(s):  
Negative Impact ◽  
Shareholder Wealth ◽  
Moral Intensity ◽  
Ethical Investment ◽  
Remedial Measures ◽  
British Petroleum ◽  
Wealth Maximization ◽  
Shareholder Wealth Maximization ◽  
Classical Economic ◽  
Ethical Investments

AbstractThe environmental pollution caused by Advanced Semiconductor Engineering in October 2013 in Taiwan highlighted the fact that foreign investors tend to support the classical economic ideas of arbitrage and shareholder wealth maximization, which is in conflict with the fact that institutional investors in the current global capital market lean towards the stakeholder theory in ethical investments. Will local investors’ decision-making also be influenced by differences in the perceived ethics of negative environmental corporate social responsibility (ECSR)? Compared to the remedial measures implemented by British Petroleum for the 2010 Deepwater Horizon oil spill, Advanced Semiconductor Engineering, another international corporation, decided to not respond to any news regarding the toxic wastewater incident. In contrast, Advanced Semiconductor Engineering only made clearer promises after extreme public pressure. This study investigated whether remedial measures for negative ECSR are an important factor influencing investors’ decisions. The purpose is to clarify the interactions among perceived moral intensity of negative ECSR, the implementation of remedial measures, and the intention of ethical investment. An experimental design was employed to test the hypotheses. The results indicated that perceived moral intensity has a significant negative impact on the intention of ethical investment. The implementation of remedial measures for negative ECSR affects investors’ intent to invest. Finally, positive ECSR remedial measures also serve as a key moderating variable in the relationship between perceived moral intensity and the intention of ethical investment. This study clarified whether the provision of remedial mechanisms can effectively recover or maintain investor investment intent when companies experience negative ECSR.

Beyond Shareholder Wealth Maximization

1974 ◽  
Vol 3 (4) ◽  
pp. 25 ◽  
Author(s):  
M. Chapman Findlay ◽  
G. A. Whitmore
Keyword(s):  
Shareholder Wealth ◽  
Wealth Maximization ◽  
Shareholder Wealth Maximization

Stakeholder Happiness Enhancement: A Neo-Utilitarian Objective for the Modern Corporation

2013 ◽  
Vol 23 (3) ◽  
pp. 349-379 ◽  
Author(s):  
Thomas M. Jones ◽  
Will Felps
Keyword(s):  
Social Welfare ◽  
Shareholder Wealth ◽  
Wealth Maximization ◽  
Stakeholder Interests ◽  
Modern Corporation ◽  
Corporate Objective ◽  
Sequential Logic ◽  
Shareholder Wealth Maximization ◽  
Specific Alternative ◽  
Refined Version

ABSTRACT:Employing utilitarian criteria, Jones and Felps, in “Shareholder Wealth Maximization and Social Welfare: A Utilitarian Critique” (Business Ethics Quarterly 23[2]: 207–38), examined the sequential logic leading from shareholder wealth maximization to maximal social welfare and uncovered several serious empirical and conceptual shortcomings. After rendering shareholder wealth maximization seriously compromised as an objective for corporate operations, they provided a set of criteria regarding what a replacement corporate objective would look like, but do not offer a specific alternative. In this article, we draw on neo-utilitarian thought to advance a refined version of normative stakeholder theory that we believe addresses a major remaining criticism of extant versions, their lack of specificity. More particularly, we provide a single-valued objective function for the corporation—stakeholder happiness enhancement—that would allow managers to make principled choices between/among policy options when stakeholder interests conflict.

Sustainable Corporations in Non-Financial Sectors Through Optimal Design of Executive Pay

2013 ◽  
Vol 14 (7) ◽  
pp. 715-748
Author(s):  
David Hansen
Keyword(s):  
Limited Liability ◽  
Active Role ◽  
Shareholder Wealth ◽  
Incentive Pay ◽  
Executive Pay ◽  
Business Economics ◽  
Wealth Maximization ◽  
Shareholder Wealth Maximization ◽  
The Impact

It is commonplace in current legal scholarship that pay packages for executives that were not tied to the impact of these executives' policies on shareholder wealth maximization often caused harm to shareholder interests and their companies, especially in the long term. The no-pay-without-performance postulate is as old as the first global economic crisis of the 20thcentury – the deep depression. Since then, this postulate has been repeated and substantiated innumerous times by the majority of experts in corporate law and business economics, but without real success. There are, however, commentators who deny the existence of a link between skewed incentive pay, excessive risk-taking, and financial losses. They instead insist on the superiority of the traditional director-centric model of corporate governance, which would allegedly preserve the balance that has generally worked well between the limited role and limited liability of shareholders and the active role, fiduciary duties, and potential liability of managers, which allegedly renders additional executive pay regulation unnecessary.

CEO pay sensitivities in innovative firms

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Raghavan J. Iyengar ◽  
Malavika Sundararajan
Keyword(s):  
Firm Performance ◽  
Performance Measures ◽  
Ceo Compensation ◽  
Critical Role ◽  
Positive Association ◽  
Executive Pay ◽  
Content Type ◽  
Accounting Performance ◽  
Innovative Firms ◽  
Compensation Committees

PurposeThis study aims to investigate whether compensation committees provide the chief executive officers (CEOs) with incentives to undertake “income-decreasing” but potentially “value-enhancing” innovation expenditures. The authors specifically analyze pay–performance relationships for innovative firms relative to all other firms. This study is critical because innovation is expensive and has uncertain outcomes.Design/methodology/approachUsing alternative accounting performance measures and market performance measures, the authors estimate an econometric model of CEO compensation in innovative firms that incorporates the interaction of endogenous innovation and firm performance.FindingsThe authors document an incremental positive association between changes in accounting performance measures and CEO compensation changes in innovative firms relative to other firms. This sensitivity of executive pay to firm performance is higher for firms that innovate. These results support the hypothesis that compensation committees provide incentives to carry out risky innovation by tying executive compensation more closely to firm performance. This finding survives a battery of sensitivity tests.Practical implicationsThe implications of this study are significant. Capital needs to support risky research and development investments (Tidd and Besant, 2018; Baldwin and Johnson, 1995) form the basis of innovative firms' operations. Considering these expenses, if CEOs, who play a critical role in the scanning, adapting and implementing innovative needs in a firm, are not protected and compensated for making risky choices, the entire investment itself will be threatened. Hence, the findings reiterate and support earlier findings that speak to the importance of compensating CEOs to make high-risk investments that will lead to long-term economic and financial gains for the firm when the innovative behaviors result in competitive market shares and profits.Originality/valueThe original work is related to the investigation of pay–performance sensitivity in the presence of innovation, which has not been fully investigated in prior literature.

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