R&D Expenditures and CEO Compensation

2004 ◽  
Vol 79 (2) ◽  
pp. 305-328 ◽  
Author(s):  
Shijun Cheng
Keyword(s):  
Ceo Compensation ◽  
Total Compensation ◽  
Small Loss ◽  
Annual Total ◽  
Compensation Committees

This study investigates whether compensation committees seek to prevent opportunistic reductions in R&D expenditures. I hypothesize that changes in R&D spending are more strongly positively associated with changes in CEO compensation in two situations: (1) when the CEO approaches retirement, and (2) when the firm faces a small earnings decline or a small loss. Consistent with these hypotheses, the results indicate that the association between changes in R&D spending and changes in the value of CEO annual option grants is significantly positive in the above two situations, and insignificant otherwise. Similar results hold for changes in CEO annual total compensation. The results also show that neither situation is associated with reduced R&D spending. Overall, these findings suggest that compensation committees respond to, and effectively mitigate, potential opportunistic reductions in R&D spending.

scholarly journals Can compensation committees effectively mitigate the CEO horizon problem? The role of co-opted directors

2020 ◽  
Vol 34 (1) ◽  
pp. 1-21
Author(s):  
Ruonan Liu
Keyword(s):  
Corporate Governance ◽  
Research And Development ◽  
Empirical Evidence ◽  
Design Methodology ◽  
Ceo Compensation ◽  
Content Type ◽  
Horizon Problem ◽  
Accruals Management ◽  
Compensation Committees

Purpose This study aims to examine whether compensation committees dominated by co-opted directors are less effective in mitigating the CEO horizon problem. Design/methodology/approach The author uses a sample of 7,280 firm-year observations from 1998 to 2011. Findings In this study, the author finds evidence of opportunistic research and development (R&D) reduction and accruals management in firms with retiring CEOs and compensation committees dominated by co-opted directors. Moreover, it is found that R&D reduction and income-increasing accruals are less discouraged when determining the compensation for retiring CEOs by compensation committees that are dominated by co-opted directors. The results suggest that compensation committees dominated by co-opted directors are less effective in adjusting CEO compensation to mitigate the CEO horizon problem. Originality/value The study reveals that co-opted directors are weak monitors. Moreover, the study adds empirical evidence to the debate of organizations’ CEO horizon problem. Finally, the study adds to the literature on corporate governance, revealing that compensation committees play an important role in mitigating an organization’s CEO horizon problem by adjusting CEO compensation.

scholarly journals Corporate Payout Policy and CEO Compensation Structure

2018 ◽  
Vol 8 (2) ◽  
pp. 179
Author(s):  
Lee-Hsien Pan ◽  
Thomas Barkley ◽  
Shaio-Yan Huang
Keyword(s):  
Ceo Compensation ◽  
Payout Policy ◽  
Free Cash Flow ◽  
Share Repurchases ◽  
Negative Effects ◽  
Total Compensation ◽  
Dividend Payout ◽  
Leverage Ratio ◽  
Compensation Structure ◽  
Investment Projects

This paper examines how corporate payout policy is affected by CEO compensation structure using data from more than 1,600 firms during 1992-2006. Specifically, it studies the effects of CEO compensation structure, firm characteristics, and dividend payout policies on dividend type and relative dividend size.It finds CEO salary is positively associated with cash dividends, share repurchases, and relative dividend size whereas CEO salary (compared to bonus) as a percentage of total compensation has negative effects on cash dividends and share repurchases. It also discovers CEO stock awards as a percentage of total compensation are positively associated with share repurchases and CEO option awards are negatively related to cash dividends.In addition, this paper shows larger firms and firms with more free cash flow distribute more cash dividends and share repurchases. On the other hand, firms with higher leverage ratio and more investment opportunities prefer to save earnings for future re-investment projects. Finally, it show dividend payout policy (either cash dividends or share repurchases) increases relative dividend size. The results of this study suggest that CEO compensation components affect CEOs’ dividend payout decisions: when CEOs’ stock award increases, they prefer to use share repurchases; when CEOs’ option award increases, they prefer not to use cash dividends.

SEC adopts rule to implement Dodd-Frank CEO pay ratio disclosure requirement

2016 ◽  
Vol 17 (1) ◽  
pp. 122-130
Author(s):  
Richard J. Parrino
Keyword(s):  
Design Methodology ◽  
Chief Executive ◽  
Securities And Exchange Commission ◽  
Total Compensation ◽  
Content Type ◽  
Meaningful Information ◽  
Depth Analysis ◽  
Ceo Pay ◽  
Annual Total ◽  
Disclosure Requirement

Purpose This article examines the rule issued by the Securities and Exchange Commission in August 2015 that requires most SEC-reporting companies to disclose annually the ratio of the annual total compensation of their chief executive officer to the median of the annual total compensation of their employees other than the CEO. Design/methodology/approach This article provides an in-depth analysis of the operation of the controversial pay ratio disclosure rule against the backdrop of concerns expressed by many commenters on the rule proposal, as well as by the two Commissioners who dissented from adoption of the rule, that the disclosure will not provide meaningful information to investors and will be excessively costly and burdensome for companies to produce. Findings The SEC fashioned the final pay ratio disclosure rule with a vaguely defined statutory purpose to guide it and a heavy volume of comments on its rule proposal that urged widely disparate approaches to implementation. In overhauling the proposed rule, the SEC sought to satisfy its mandate under the Dodd-Frank Act while providing companies with flexibility in implementing the new rule that it believes will reduce compliance costs and burdens. Originality/value This article provides expert guidance on a major new SEC disclosure requirement from experienced securities lawyers.

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.

Price versus Non-Price Performance Measures in Optimal CEO Compensation Contracts

2003 ◽  
Vol 78 (4) ◽  
pp. 957-981 ◽  
Author(s):  
John E. Core ◽  
Wayne R. Guay ◽  
Robert E. Verrecchia
Keyword(s):  
Performance Measures ◽  
Relative Weight ◽  
Performance Measure ◽  
Future Research ◽  
Total Compensation ◽  
Compensation Contracts ◽  
Price Performance ◽  
Ceo Incentives ◽  
Annual Total ◽  
Increasing Function

We empirically examine standard agency predictions about how performance measures are optimally weighted to provide CEO incentives. Consistent with prior empirical research, we document that the relative weight on price and non-price performance measures in CEO cash pay is a decreasing function of the relative variances. Agency theory speaks to the weights in total compensation (annual total pay and changes in the CEO's equity portfolio value), however, and we document that very little of CEOs' total incentives come from cash pay. We also document that variation in the relative weight on price and non-price performance measures in CEO total compensation is an increasing function of the relative variances. The conflicting results using total compensation indicate that existing findings on cash pay cannot be interpreted as evidence supporting standard agency predictions. Based on our results, we suggest approaches for future research on performance measure use in CEO total compensation.

scholarly journals Investigating the extent of sustainability reporting in the banking industry

2016 ◽  
Vol 11 (4) ◽  
pp. 71-81 ◽  
Author(s):  
Anet M. Smit ◽  
Johan van Zyl
Keyword(s):  
South Africa ◽  
Social Responsibility ◽  
Banking Industry ◽  
Stock Exchange ◽  
Sustainability Reporting ◽  
Performance Criteria ◽  
Global Reporting Initiative ◽  
Integrated Reporting ◽  
Total Compensation ◽  
Annual Total

This study investigated the extent to which banks in South Africa report on remuneration and incentives according to the Global Reporting Initiative (GRI) guidelines. The study was done by examining the annual integrated reports of eight commercial banks listed on the Johannesburg Stock Exchange. Content analysis was used as the research method in this empirical study. There was, on average, 75% compliance to G4-51 a, the standard concerning remuneration policies by the integrated reports studied and 69% compliance to G4-52 a, the standard concerning the process for determining remuneration. There was a very low degree of compliance to standard G-53 a and standard G4-55 a, which concern how stakeholders’ views are sought and taken into account regarding remuneration and the ratios regarding compensation, respectively. Two of the standards had no compliance at all. They are G4-51 b and G4-54 a that respectively, concerns how the performance criteria in the remuneration policy relate to the highest governance bodies’ and senior executives’ economic, environmental and social objectives and the ratio of the annual total compensation for the organization’s highest-paid individual in each country of significant operations to the median annual total compensation for all employees. These are two of the most important standards in order to reach the objective of social responsibility reporting with regards to remuneration and that serious consideration must be given as to why there is no compliance. Based on the findings from this study, it is found that social reporting by the banks listed on the JSE with regards to remuneration, as indicated by the GRI G4, are relatively poor. Keywords: sustainability reporting, sustainable development, global reporting initiative, integrated reporting; remuneration and incentives, corporate social responsibility, banking industry, South Africa. JEL Classification: M14, N2, N27, M52

scholarly journals Corportate Diversification and CEO Compensation: Evidence from the Moderating Effect of Stock Ownership

e-Finanse ◽  
2019 ◽  
Vol 15 (4) ◽  
pp. 83-92
Author(s):  
Hwei Cheng Wang ◽  
Yung-I Lou ◽  
Chiulien C. Venezia ◽  
Nicole A. Buzzetto-Hollywood
Keyword(s):  
Agency Theory ◽  
Ceo Compensation ◽  
Large Fraction ◽  
International Diversification ◽  
Interaction Effects ◽  
Stock Ownership ◽  
Corporate Diversification ◽  
Total Compensation ◽  
Industry Diversification ◽  
The Relationship

AbstractThe article is an attempt to assess whether Stock Ownership moderates the relationship between corporate diversification and CEO compensation. Based on agency theory, we develop the hypothesis of whether when CEOs hold a large fraction of their firms’ outstanding stock, the CEOs are acting more as owners or shareholders than employees. This reduces the principal and agency relationship of agency theory, since CEOs are acting as owners rather than employees; thus the demand for further stock-based compensation is likely to be reduced because the interests of CEOs and shareholders are relatively aligned. For the purposes of this study, a sample of 2,448 CEO compensations across 1,622 firms from 1997 to 2002 was used to test several hypotheses. Corporate diversification was divided into two categories; international diversification and industry diversification. To test the hypotheses, multiple regression analysis was employed to examine stock ownership as a moderator variable on the relationship between international diversification and industry diversification and CEO total compensation with tenure, age, duality, and gender as control variables. The results indicate that stock ownership negatively and significantly influences the relationship between International diversification and CEO compensation. Additionally, the findings also confirm that stock ownership negatively and significantly influences the relationship between industrial diversification and CEO compensation. Our results are consistent with our hypotheses and indicate that firms with lower Stock Ownership produce larger interaction effects to increase international diversification and total compensation pay to CEOs, and firms with lower Stock Ownership, produce larger interaction effects to increase industry diversification and total compensation pay to CEOs.

scholarly journals The Role of Accounting in the Design of CEO Equity Compensation

2007 ◽  
Vol 82 (2) ◽  
pp. 327-357 ◽  
Author(s):  
Mary Ellen Carter ◽  
Luann J. Lynch ◽  
I˙rem Tuna
Keyword(s):  
Financial Reporting ◽  
Ceo Compensation ◽  
Stock Option ◽  
Total Compensation ◽  
Equity Compensation ◽  
Restricted Stock ◽  
Compensation Design

We examine the role of accounting in CEO equity compensation design. For a sample of ExecuComp firms in 1995–2001, we find that financial reporting concerns are positively related to stock option use and total compensation, and negatively related to the use of restricted stock. We confirm our findings by examining changes in CEO compensation in firms that begin expensing options in 2002 or 2003. We find that these firms reduce their option use and increase their restricted stock use after starting to expense options but exhibit no decrease in total compensation. Taken together, our analyses suggest that favorable accounting treatment for options led to a higher use of options and lower use of restricted stock than would have been the case absent accounting considerations.

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