Compensation Consultant Fees and CEO Pay

2020 ◽  
Vol 32 (1) ◽  
pp. 51-78
Author(s):  
Jeh-Hyun Cho ◽  
Iny Hwang ◽  
Jeong-Hoon Hyun ◽  
Jae Yong Shin
Keyword(s):  
Corporate Governance ◽  
Executive Compensation ◽  
Positive Association ◽  
Data Availability ◽  
Compensation Contracts ◽  
Strong Incentive ◽  
Ceo Pay ◽  
Jel Classifications

ABSTRACT While compensation consultants are known to play an important role in the design of executive compensation contracts, evidence on the effect of consultant incentives on CEO pay is mixed. Using compensation consultant observations with mandatory fee disclosures, which a prior study identifies as an optimal pay setter, we examine whether CEO pay is associated with consultants' incentives to retain clients, measured by fees for executive compensation services. In contrast to previous studies that find no support for repeat business incentives, we find evidence that CEO pay is higher when consultants receive abnormally high fees, demonstrating a strong incentive to retain the client, and that this positive association occurs only in weakly governed firms. This finding highlights the importance of consultant incentives and corporate governance in executive compensation settings. JEL Classifications: M12; G34; G38. Data Availability: Data used in this study are publicly available.

Compensation Disclosures and Corporate Governance through Shareholder Voting

2019 ◽  
Vol 32 (3) ◽  
pp. 27-48 ◽  
Author(s):  
Brian Cadman ◽  
Richard Carrizosa ◽  
Xiaoxia Peng
Keyword(s):  
Corporate Governance ◽  
Fair Value ◽  
Data Availability ◽  
Shareholder Voting ◽  
Compensation Committee ◽  
The Public ◽  
Equity Compensation ◽  
Ceo Pay ◽  
Jel Classifications

ABSTRACT There are several measures of equity compensation that may provide shareholders with distinct and useful information for evaluating CEO pay. We examine whether shareholders consider additional disclosures of equity compensation measures beyond the grant date fair value when participating in corporate governance. We find that CEO equity compensation expense, a distinct measure of equity compensation, is a determinant of shareholder voting for management sponsored equity plans and voting for directors that serve on the compensation committee. After controlling for ISS recommendations, we find that voting outcomes remain significantly related to abnormal equity compensation expense. Consistent with shareholders considering the equity compensation expense, we document that firms shorten equity compensation vesting periods when they are no longer required to disclose the equity compensation expense. Our findings suggest that shareholders rely on multiple, distinct measures of equity compensation when participating in corporate governance. JEL Classifications: M12; M52; G34. Data Availability: Data are available from the public sources cited in the text.

scholarly journals A Literature Review of the Perspectives of CEO Pay: An Analysis of Issues and Controversies

2018 ◽  
Vol 8 (4) ◽  
pp. 44
Author(s):  
Faitira Manuere ◽  
Precious Hove
Keyword(s):  
Corporate Governance ◽  
Literature Review ◽  
Executive Compensation ◽  
Ceo Compensation ◽  
Executive Pay ◽  
The Core ◽  
Good Corporate Governance ◽  
Ceo Pay ◽  
Conceptual Background

The purpose of this paper is to review the literature on various theories that are used in organisations today to determine executive compensation. This paper analyses the relevance of the theories that are used to determine CEO compensation in modern corporations. The paper makes an attempt to review extensively the literature on CEO compensation. This paper looks at the concerns of sixteen theories of executive compensation. This paper further analyses the special features that are associated with CEO pay. These features help us to understand the problems that experts on executive pay experience when they try to define the exact CEO pay when compared to other rewards that are non financial. The drivers of executive pay are quantified and qualified in order to provide the conceptual background needed to understand the core factors that determine executive pay. Therefore the role of institutional investors in driving managerial salary is explored in detail. Finally, the effects of firm size and good corporate governance on executive pay are carefully analysed.

Compensation Consultants and the Level, Composition, and Complexity of CEO Pay

2019 ◽  
Vol 95 (1) ◽  
pp. 311-341 ◽  
Author(s):  
Kevin J. Murphy ◽  
Tatiana Sandino
Keyword(s):  
Fixed Effects ◽  
Conflicts Of Interest ◽  
Data Availability ◽  
The Public ◽  
Say On Pay ◽  
Suggestive Evidence ◽  
Ceo Pay ◽  
The Impact ◽  
Equity Incentive ◽  
Jel Classifications

ABSTRACT We provide fresh evidence regarding the relation between compensation consultants and CEO pay. First, firms that employ consultants have higher-paid CEOs—this result is robust to firm fixed effects and matching on economic and governance variables. Second, while this relation is partly due to consultant conflicts of interest, it is largely explained by the impact consultants have on the composition and complexity of CEO pay plans; notably, this impact fully mediates the consultant-CEO pay relation. Third, firms with higher-paid CEOs and more complex pay plans are more likely to hire a consultant. Last, Say-on-Pay voting patterns suggest shareholders view positively the advice consultants provide, but only when consultants provide no other services. We also find suggestive evidence of boards “layering” new equity incentive plans over existing ones, thereby increasing the impact of composition and complexity on CEO pay beyond the premium the CEO would demand for bearing additional compensation risk. JEL Classifications: J33; M12; M52; M48. Data Availability: Data are available from the public sources cited in the text.

Determinants of CEO Pay: A Comparison of ExecuComp and Non-ExecuComp Firms

2010 ◽  
Vol 85 (5) ◽  
pp. 1511-1543 ◽  
Author(s):  
Brian Cadman ◽  
Sandy Klasa ◽  
Steve Matsunaga
Keyword(s):  
Executive Compensation ◽  
Stock Returns ◽  
Institutional Ownership ◽  
Stock Option ◽  
Ownership Concentration ◽  
Positive Relation ◽  
Stock Liquidity ◽  
Compensation Contracts ◽  
Cash Compensation ◽  
Ceo Pay

ABSTRACT: We document that firms included in the ExecuComp database tend to be larger, more complex, followed by more analysts, have greater stock liquidity levels, and have higher total, but less concentrated, institutional ownership than other firms. Based on these differences, we test and find support for three predictions. First, ExecuComp firms rely more heavily on earnings and stock returns in determining CEO cash compensation. Second, the weight on earnings is more sensitive to differences in the extent of growth opportunities for ExecuComp firms. Third, the positive relation between institutional ownership concentration and the value of stock option grants is stronger for ExecuComp firms. Overall, our results suggest that ExecuComp and non-ExecuComp firms operate in different contracting environments that lead to differences in the design of their executive compensation contracts. As a result, care should be taken in extending results based on ExecuComp samples to non-ExecuComp firms.

scholarly journals Lessons learned from CEO pay and market cap performance in the mining and metals industries: Implications for the board of directors and for corporate governance

2015 ◽  
Vol 12 (4) ◽  
pp. 813-818
Author(s):  
Hugh Grove ◽  
Mac Clouse ◽  
Sharon Lassar
Keyword(s):  
Corporate Governance ◽  
Executive Compensation ◽  
Board Of Directors ◽  
Weighted Average ◽  
Simple Correlation ◽  
Market Capitalization ◽  
Ceo Pay ◽  
Correlation Tests ◽  
Compensation Packages ◽  
Total Market

CEO pay was correlated with market capitalization performance. Three simple correlation tests of 2013 total CEO pay with market capitalization destruction over the approximate three and one-half year period, January 2011 through July 2014, yielded a 66% weighted average moderate correlation for thirty-four companies. The total market cap destruction for these companies was an estimated $120.1 billion with total CEO pay of $224.6 million. Thus, total market cap destruction was approximately 535 times greater than total CEO pay. During this approximate three and one-half year time period, the S&P 500 Index increased 51.8%. Our simple correlation tests do not imply any causality. However, some corporate governance researchers (Kostyuk, 2014 and Hilb, 2008) have advocated: “Pay for Performance, not Presence” which could include such correlations as part of executive compensation packages from Board of Directors’ compensation committees. Claw-back provisions could be used for market capitalization destruction in evolving executive compensation packages.

scholarly journals Relevant but Delayed Information in Negotiated Audit Fees

2014 ◽  
Vol 33 (4) ◽  
pp. 95-117 ◽  
Author(s):  
Karl E. Hackenbrack ◽  
Nicole Thorne Jenkins ◽  
Mikhail Pevzner
Keyword(s):  
Information Asymmetry ◽  
Positive Association ◽  
Audit Fees ◽  
Data Availability ◽  
Bad News ◽  
Specific Knowledge ◽  
Delayed Information ◽  
Audit Fee ◽  
News Events ◽  
Jel Classifications

SUMMARY: Audit fee negotiations conclude with the signing of an engagement letter, typically the first quarter of the year under audit. Yet investors do not learn the audit fee paid until disclosed in the following year's definitive proxy statement. We conjecture that negotiated audit fees impound auditors' consequential private, client-specific knowledge about “bad news” events investors will learn eventually. We demonstrate that a proxy for the year-to-year change in the negotiated audit fee has an economically meaningful positive association with proxies for public realizations of “bad news” events that occur during the roughly 12-month period between the negotiation of the audit fee and the disclosure of the audit fee paid. Our results suggest that negotiated audit fees contain information meaningful to investors and that if disclosed proximate to the signing of the engagement letter instead of the following year, information asymmetry between managers and investors would be reduced. JEL Classifications: G19, D89, M40. Data Availability: Available from public sources identified in the text.

Geographic and Industrial Corporate Diversification: The Level and Structure of Executive Compensation

2002 ◽  
Vol 17 (1) ◽  
pp. 1-24 ◽  
Author(s):  
Augustine Duru ◽  
David M. Reeb
Keyword(s):  
Executive Compensation ◽  
Ceo Compensation ◽  
Performance Criteria ◽  
Corporate Diversification ◽  
Geographic Diversification ◽  
Compensation Contracts ◽  
Industrial Diversification ◽  
Diversification Strategies ◽  
Ceo Pay ◽  
And Performance

We explore the relation between corporate diversification and CEO compensation. We document that geographic diversification provides a compensation premium, while industrial diversification is associated with lower levels of CEO pay. We also examine the effect of corporate diversification on the structure and performance criteria of CEO compensation contracts. We find that both diversification strategies are associated with a greater use of incentive-based compensation and with a greater reliance on market-based, rather than accounting-based measures of firm performance. Finally, we address the question of whether shareholders reward CEOs for corporate diversification. We document that while value-enhancing geographic diversification is rewarded, non-value-enhancing industrial diversification is penalized.

An Analysis of “Little r” Restatements

2015 ◽  
Vol 29 (3) ◽  
pp. 667-693 ◽  
Author(s):  
Christine E. L. Tan ◽  
Susan M. Young
Keyword(s):  
Corporate Governance ◽  
Audit Quality ◽  
Cash Flows ◽  
Internal Controls ◽  
Data Availability ◽  
Policy Implications ◽  
Multivariate Tests ◽  
Material Weaknesses ◽  
Free Cash Flows ◽  
Jel Classifications

SYNOPSIS “Little r” restatements occur when a firm's immaterial errors accumulate to a material error in a given year. Unlike “Big R” restatements that must be reported through an SEC 8-K material event filing, little r restatements do not require an 8-K form or a withdrawal of the auditor opinion. This paper documents this previously unexamined form of restatement and analyzes the characteristics of the firms that have used this method of correcting accounting errors over the period 2009 through 2012. Contrary to concerns voiced by regulators and research agencies we find, in multivariate tests, that little r firms are generally more profitable, less complex, and show some evidence of stronger corporate governance and higher audit quality than Big R firms. Compared to non-revising or restating firms, little r firms have lower free cash flows, higher board expertise, higher CFO tenure, are less likely to use a specialist auditor, and less likely to have material weaknesses in their internal controls. We also find that the majority of little r firms do not include any discussion of why these little r's occurred. We discuss policy implications related to disclosure of little r revisions. JEL Classifications: M41; M48; G38. Data Availability: All data used in this study are publicly available from the sources indicated.

scholarly journals Editorial: Promulgating innovative ideas in corporate governance

2019 ◽  
Vol 16 (3) ◽  
pp. 4-5
Author(s):  
Kalin Kolev
Keyword(s):  
Corporate Governance ◽  
Board Of Directors ◽  
Voluntary Disclosure ◽  
Data Availability ◽  
Future Research ◽  
Compensation Contracts ◽  
For Profit ◽  
Fertile Ground ◽  
Stakeholder Interactions

This issue keeps the Journal’s tradition of promulgating innovative ideas on a broad range of questions related to corporate governance. By its nature, governance is inseparable from the existence, operation, and evolution of economic entities. As such, gaining understanding of its characteristics informs the spectrum of social science disciplines. Compensation contracts, a board of directors’ composition, stakeholder interactions, and the role of mandatory and voluntary disclosure of entities that are searching for or have acquired capital, serve as some of its many manifestations. Limited by data availability, extant research often favors public, for-profit entities. Understanding the role of governance in non-for-profit entities, private enterprises, and individuals, however, is just as important, and offers a fertile ground for future research

Institutional Investors and CEO Pay Performance in Malaysian Firms

2018 ◽  
Vol 17 (1) ◽  
pp. 87-102 ◽  
Author(s):  
Tee Chwee Ming ◽  
Yee-Boon Foo ◽  
Ferdinand A. Gul ◽  
Abdul Majid
Keyword(s):  
Firm Performance ◽  
Institutional Investors ◽  
Ceo Compensation ◽  
Positive Association ◽  
Institutional Ownership ◽  
Institutional Investor ◽  
Ceo Pay ◽  
Negative Effect ◽  
Foreign Institutional Investors ◽  
Jel Classifications

ABSTRACT This study uses Malaysian data to examine whether institutional investors affect the association between firm performance and CEO compensation. Overall, we find that total institutional investor ownership has a negative effect on the positive association between firm performance and CEO compensation, which suggests ineffective monitoring. When the institutional investors are categorized into local and foreign, we find that the negative effect is driven by local institutional ownership, consistent with the argument that foreign institutional investors are associated with better monitoring. Our results provide new insights on the association between institutional investors and the CEO compensation-firm performance relationship in an emerging economy. JEL Classifications: G34; J33.

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