The Impact of Company Stakeholders on Executive Pay

Purpose The purpose of this paper is to focus on comparing the influence of majority and minority shareholders on executive compensation under conditions of CEO duality, examining majority and minority shareholder influences by measuring their investment and return activity. The paper seeks to uncover how CEO duality changes the impact the two categories of shareholders have on executive compensation, especially in an emerging nation. Design/methodology/approach In total, 30 corporations out of the 70 corporations listed on the BM&F Bovespa (a Brazilian stock market) were used for the paper. Quarterly data were collected on the companies from the Datastream database. The paper conducted a moderated regression analysis on the data to determine the conditional effects of majority and minority holders’ investment and returns on executive compensation. Findings There are incentives for executives meeting majority shareholder objectives, but minority shareholders’ influences act as a disincentive for executives. Only the influence of blockholders by their returns is affected by the separation of the roles of CEO and Chairman. The effect is such that firms with a separation of the roles have their executives rewarded in line with increments to the returns made to blockholders, but firms that have the roles merged pay a high wage that is inconsistent with managerial performance. Finally, the majority of variation in executive pay levels can be attributed to individual company traits. Research limitations/implications The paper’s sample is biased to firm which had publicly available data on the total compensation payable to their top executives. Practical implications Advocates of minority shareholder rights may need to exercise patience with the implementation of more formalised governance structure, as they are not providing protection for minority shareholders within the period studied. Originality/value The paper provides empirical evidence within the Brazilian context of minority shareholder effects on executive compensation and the effect of CEO duality on the relationship.

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The impact of public scrutiny on executive compensation

Journal of Financial Regulation and Compliance ◽

10.1108/jfrc-07-2017-0060 ◽

2019 ◽

Vol 27 (3) ◽

pp. 303-323

Author(s):

Andrew Glen Carrothers

Keyword(s):

Executive Compensation ◽

Chief Executive ◽

Multivariate Regression Analysis ◽

Government Support ◽

Executive Pay ◽

Data Set ◽

Content Type ◽

Public Scrutiny ◽

The 2008 Financial Crisis ◽

The Impact

Purpose This paper aims to examine the impact of public scrutiny on chief executive officer (CEO) compensation at Standard & Poor’s (S&P) 500 firms. Design/methodology/approach This paper uses the unique opportunity provided by the 2008 financial crisis and, in particular, government support and legislated compensation restrictions in the US Department of the Treasury’s Troubled Asset Relief Program (TARP). It aggregates monetary and non-monetary executive compensation information from 2006 to 2012, with firm- and manager-level data. It presents univariate summary compensation results and uses multivariate regression analysis to isolate the impact of public scrutiny and legislated compensation restrictions on executive pay. Findings Overall, the results are consistent, with increased public scrutiny having a lasting impact on perks and temporary impact on wage and legislated compensation restrictions having a temporary impact on wage. Changes in specific perk items provide evidence on which perks firms perceive as excessive and which provide common value. Originality/value The paper contributes to the discussion of perks as excess by introducing a novel data set of perk compensation at S&P500 firms and by studying how firms choose to alter levels of specific perk items in response to increased public scrutiny and legislated compensation restrictions. The paper contributes to the literature on executive pay as there has been little inquiry into the impact of public scrutiny on compensation. Public scrutiny could be an important source of external governance if firms change behavior in response to explicit and implicit scrutiny costs.

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

German Law Journal ◽

10.1017/s2071832200002005 ◽

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.

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Executive pay bandwagon and stock price crash risk

Nankai Business Review International ◽

10.1108/nbri-10-2018-0062 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Hong Luo ◽

Junfeng Wu ◽

Wan Huang ◽

Yongliang Zeng

Keyword(s):

Earnings Management ◽

Internal Control ◽

Stock Price ◽

Tax Avoidance ◽

Crash Risk ◽

Executive Pay ◽

Data Set ◽

Content Type ◽

Listed Firms ◽

The Impact

Purpose This paper aims to investigate the impact of executives’ self-interested behaviors induced by the pay bandwagon on stock price crash risk in Chinese listed firms and attempt to shed light on the influencing channels of this effect. Design/methodology/approach The empirical analysis is based on the panel data set which contains information on the executives and stock price of 11,710 firm-year observations over the period 2007–2015. The multiple linear regression models are implemented to examine whether the executive pay bandwagon affects corporate future stock price crash risk. Then, earnings management, tax avoidance and overinvestment are applied as the behavior choice of executive pay bandwagon to analyze the potential influencing channels. Findings Results indicate that the lower the executives’ pay is than the median pay level of executives in firms of similar size and industry, incentives of pay bandwagon are stronger, leading to a higher future stock price crash risk. Moreover, evidence shows that the positive relationship between executive pay bandwagon and crash risk is attenuated when firms have strong external monitoring mechanisms such as Big Four auditors, cross-listing in the Hong Kong stock exchange, high marketization process and high institutional ownership. Then, some weak evidence supports that internal governance such as internal control plays the same moderating role. In addition, based on the path test, the stock price crash effect of the executive pay bandwagon has a complete tax avoidance intermediary effect and a partial earnings management intermediary effect. Originality/value This study contributes to the executive compensation literature from a psychological perspective on the economic consequences research brought about by the pay bandwagon for China’s listed firms. Moreover, this paper provides a supplement to the literature on factors which is completely different from previous studies that affect the future stock price crash risk.

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Whose pay should be cut in economic crises? Consumers prefer firms that prioritize paying employees over CEOs

Behavioural Public Policy ◽

10.1017/bpp.2021.30 ◽

2021 ◽

pp. 1-18

Author(s):

Serena F. Hagerty ◽

Bhavya Mohan ◽

Michael I. Norton

Keyword(s):

Consumer Behavior ◽

Economic Crises ◽

Executive Pay ◽

Incentive Compatible ◽

Consumer Reactions ◽

Ceo Pay ◽

Pay Cuts ◽

The Impact

Abstract Four experiments examine the impact of a firm deciding to no longer pay salaries for executives versus employees on consumer behavior, particularly in the context of the COVID-19 pandemic. Study 1 explores the effect of announcing either pay cessations or continued pay for either CEO or employees, and shows that firms’ commitment to maintaining employee pay leads to the most positive consumer reactions. Study 2 examines the effects of simultaneously announcing employee and CEO pay cessations: consumers respond most positively to firms prioritizing employee pay, regardless of their strategy for CEO pay. Moreover, these positive perceptions are mediated by perceptions of financial pain to employees, more than perceptions of CEO-to-worker pay ratio fairness. Study 3, using an incentive-compatible design, shows that firms’ commitment to paying employees their full wages matters more to consumers than cuts to executive pay, even when those executive pay cuts lead to a lower CEO-to-worker pay ratio. Study 4 tests our account in a non-COVID-19 context, and shows that consumers continue to react favorably to firms that maintain employee pay, but when loss is less salient, consumers prioritize cutting CEO pay and lowering the CEO-to-worker pay ratio. We discuss the implications of our results for firms and policymakers during economic crises.

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How do executive pay and its gap with employee pay influence corporate performance? Evidence from Thailand tourism listed companies

Journal of Hospitality and Tourism Insights ◽

10.1108/jhti-03-2021-0061 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Laurence Ferry ◽

Guanming He ◽

Chang Yang

Keyword(s):

Regression Analysis ◽

Firm Performance ◽

Executive Compensation ◽

Corporate Performance ◽

Listed Companies ◽

Executive Pay ◽

Short Term ◽

Pay Gap ◽

Content Type ◽

The Impact

PurposeThe authors investigate how executive pay and its gap with employee pay influence the performance of Thailand tourism listed companies.Design/methodology/approachThe authors manually collect data on the executives' and employees' remunerations for Thailand tourism listed companies and use the data for the authors’ OLS regression analysis. To check the robustness of the results to potential endogeneity issues, the authors employ the two-stage least-squares regression analysis and the impact threshold for a confounding variable approach.FindingsThe authors find that short-term executive compensation enhances firm performance, and that long-term executive compensation reduces the likelihood of unfavorable corporate performance. The authors also find that the gap in short-term pay between executives and employees has an inverted-U relation with firm performance.Research limitations/implicationsThis study suggests that higher executive pay relative to employee pay could encourage executives to work hard to improve corporate performance, but that too large a pay gap between executives and employees could impair employees' morale and harm firm performance.Practical implicationsIt is important for tourism companies to not only pay executives well but also avoid too large a pay gap between executives and employees.Social implicationsThis study implies the important role of compensation design in contributing to employee engagement and good performance for tourism firms.Originality/valueThis study sheds light on agency problems between executives and employees in tourism companies and provides new evidence and insights on compensation research in the tourism sector in emerging markets.

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Executive compensation and firm performance: a non-linear relationship

Problems and Perspectives in Management ◽

10.21511/ppm.17(2).2019.01 ◽

2019 ◽

Vol 17 (2) ◽

pp. 1-17 ◽

Cited By ~ 2

Author(s):

Rijamampianina Rasoava

Keyword(s):

Firm Performance ◽

Executive Compensation ◽

Linear Relationship ◽

South African ◽

Boards Of Directors ◽

Company Size ◽

Executive Pay ◽

Optimal Contracting ◽

Non Linear ◽

The Impact

In order to ensure profitability for shareholders, optimal contracting recommends the alignment between executive compensation and company performance. Large organizations have therefore adopted executives remuneration systems in order to induce positive market reaction and motivate executives. Complex compensation schemes are designed by Boards of Directors using strong pay-performance incentives that explain high levels of executive pay along with company size, demand for management skills and executive influence. However, the literature remains inconclusive on the pay-performance relationship owing to the various empirical methods used by researchers. Additionally, there has been little effort in the literature to compare methodologies on the pay-performance relationship. Using the dominant agency theory framework, the purpose of this study is to establish and examine the relationship between firm performance and executive pay. In addition, it intends to assess the characteristic of model specifications commonly adopted. To this aim, a quantitative analysis consisting of three complementary methods was performed on panel data from South African listed companies. The results of the main unrestricted first difference model indicate a strong non-linear relationship where the impact of current and previous firm performance on executive pay can be observed over 2 to 4-year period providing support to the optimal contracting theoretical perspective in the South African business context. In addition, CEO pay is more sensitive to firm performance as compared to Director pay. Lastly, although it affects executive pay levels, company size is not found to improve the pay-performance relationship.

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