How Much Compensation Can CEOs Permissibly Accept?

2009 ◽  
Vol 19 (2) ◽  
pp. 235-250 ◽  
Author(s):  
Jeffrey Moriarty
Keyword(s):  
Firm Performance ◽  
Executive Compensation ◽  
Boards Of Directors ◽  
Fiduciary Duties ◽  
Ceo Pay ◽  
New Perspective ◽  
Excessive Compensation

ABSTRACT:Debates about the ethics of executive compensation are dominated by familiar themes. Many writers consider whether the amount of pay CEOs receive is too large—relative to firm performance, foreign CEO pay, or employee pay. Many others consider whether the process by which CEOs are paid is compromised by weak or self-serving boards of directors. This paper examines the issue from a new perspective. I focus on the duties executives themselves have with respect to their own compensation. I argue that CEOs’ fiduciary duties place a moral limit on how much compensation they can accept, and hence seek in negotiation, from their firms. Accepting excessive compensation leaves the beneficiaries of their duties (e.g., shareholders) worse off, and thus is inconsistent with observing those duties.

scholarly journals Executive compensation and firm performance: a non-linear relationship

2019 ◽  
Vol 17 (2) ◽  
pp. 1-17 ◽  
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.

The determinants of CEO compensation: new insights from United States

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ahmed Bouteska ◽  
Salma Mefteh-Wali
Keyword(s):  
Firm Performance ◽  
Executive Compensation ◽  
Ceo Compensation ◽  
Future Research ◽  
Ceo Power ◽  
Content Type ◽  
Managerial Power ◽  
The Us ◽  
Ceo Pay ◽  
The Impact

PurposeThe purpose of this paper is to examine the determinants of CEO compensation for sample of the US firms. It emphasizes the presence of executive compensation persistence and the importance of CEO power besides performance while setting CEO pay.Design/methodology/approachThe empirical analysis is conducted on a large sample of US firms during the period 2006–2016. It is based on the generalized method of moments (GMM) models to assess the impact of numerous factors on CEO compensation.FindingsThe main findings reveal that firm performance proxied by accounting-based proxies, as well as market-based proxies, plays a significant role in explaining variations in levels of executive compensation. Moreover, there is a significant persistence in executive compensation among the US sample firms. The authors also document that poor governance conditions (managerial power hypothesis) lead to high compensation levels offered to CEO.Research limitations/implicationsAt the end, without a doubt, the analysis has some limitations that prompt the authors to consider future research directions. One future research avenue that can help better explain the effect of firm performance on the CEO compensation is to study this issue using an international sample to determine whether country-level characteristics (e.g. creditor rights, shareholder rights and the enforcement climate) can influence this relationship. Furthermore, it can be worthwhile to deepen the analysis of CEO power and its impact on CEO compensation. It will be interesting to emphasize how the CEO power interacts with the other governance characteristics and some CEO attributes as CEO gender.Practical implicationsThe paper's findings have implications for practitioners, policymakers and regulatory authorities. First, the findings inform regulators that performance is not the only determinant of CEO pay level. This may warrant increased firm disclosure of the details of the pay structure. Second, the study offers insights to policymakers and members of boards of directors interested in enhancing the design of executive compensation and internal corporate governance, to better align managerial incentives to shareholder interests. Firms should strengthen the board independence and properly constitute the board committees (compensation, risk, nomination…).Originality/valueThis paper presents a comprehensive overview of the CEO compensation determinants. It supplements the classic pay-for-performance sensitivity predictions with insights gained from the dynamics of wage setting theory and managerial power theory. The authors develop a composite index to measure the CEO power in order to test the impact of CEO attributes on CEO pay. Additionally, it verifies whether the determinants of CEO pay depend on firm age and size.

Compositional Models and Organizational Research

2016 ◽  
Vol 20 (1) ◽  
pp. 95-120
Author(s):  
Joanna Tochman Campbell ◽  
Maria L. Weese
Keyword(s):  
Firm Performance ◽  
Executive Compensation ◽  
Mixture Models ◽  
Research Question ◽  
Organizational Research ◽  
Compositional Modeling ◽  
Holistic Approaches ◽  
Ceo Pay ◽  
Research Questions ◽  
Research Stream

An emergent stream of research in management employs configurational and holistic approaches to understanding macro and micro phenomena. In this study, we introduce mixture models—a related class of models—to organizational research and show how they can be applied to nonexperimental data. Specifically, we reexamine the long-standing research question concerning the CEO pay–firm performance relationship using a novel empirical approach, treating individual pay elements as components of a mixture, and demonstrate its utility for other research questions involving mixtures or proportions. Through this, we provide a step-by-step guide for other researchers interested in compositional modeling. Our results highlight that a more nuanced approach to understanding the influence of executive compensation on firm performance brings new insights to this research stream, showcasing the potential of compositional models for other literatures.

A study of CEO power, pay structure, and firm performance

2013 ◽  
Vol 19 (4) ◽  
pp. 424-453 ◽  
Author(s):  
Chengli Tien ◽  
Chien-Nan Chen ◽  
Cheng-Min Chuang
Keyword(s):  
Firm Performance ◽  
Boards Of Directors ◽  
The United States ◽  
Future Research ◽  
Ceo Power ◽  
Short Term ◽  
Return On Assets ◽  
International Performance ◽  
Ceo Pay

AbstractThis study has extended existing research on CEO power, pay structure, and firm performance, offering models based mainly on agency theory and managerial power theory, and testing hypotheses using data from 112 companies across a five-year span (2001–2005) in computer-related industry groups in the United States. The results indicated that power from executive directorship positively impacts a firm's return on assets and return on equity, and that CEO power from duality negatively impacts CEO long-term pay and total pay, while CEO power from tenure positively impacts CEO long-term pay and pay leverage, and composite power negatively impacts short-term pay. Evidence for CEO pay as a mediator between CEO power and firm performance revealed that CEO short-term pay positively impacts a firm's return on assets and international performance but negatively impacts its market value, regardless of which source of power is being controlled. CEO total pay positively impacts a firm's return on assets and international performance, with power from CEO duality, directorship, or composite power being controlled. Hence, and in general, CEO pay fails to significantly mediate the relationships between CEO power and firm performance. The contributions include a multiple-perspective study of CEO power, compensation, and firm performance to comprehensively discover each of their respective relationships. This study has further extended the debate over agency perspectives with stewardship perspectives to fill knowledge and theoretical gaps. Thus, evidence-based findings provide boards of directors with practical knowledge for sound governance with another avenue for future research in corporate governance.

Comments on two sides of CEO pay injustice

2018 ◽  
Vol 16 (1) ◽  
pp. 107-116
Author(s):  
Martin J. Conyon
Keyword(s):  
Executive Compensation ◽  
Power Law ◽  
Boards Of Directors ◽  
Quantitative Methods ◽  
Pay For Performance ◽  
Critical Evaluation ◽  
Estimation Methods ◽  
Content Type ◽  
Ceo Pay ◽  
Two Sides

Purpose This is a short commentary on Herman Aguinis, Geoffrey Martin, Luis Gomez-Mejia, Ernest Boyle and Harry Joo (2017): “Two sides of CEO pay injustice: A power law conceptualization of CEO over and underpayment.” Design/methodology/approach Using insights from prior studies on executive compensation, the author’s commentary presents a critical evaluation of “Two sides of CEO pay injustice: […].” In addition, the author offers potential avenues for further research. Findings The paper “Two sides of CEO pay injustice” is well executed and makes several significant contributions to the management and executive compensation literature. Particularly, noteworthy are the use of advanced quantitative methods, the use of power law distributions to explain chief executive officer (CEO) pay outcomes, the focus on pay-for-performance and the role of justice in CEO outcomes. The author’s commentary in the present paper discusses the measurement of CEO pay and performance, poses alternative estimation methods to explore the pay-for-performance link and offers thoughts on justice theory in the context of CEO pay. Research limitations/implications The authors’ findings may be briefly stated as CEO pay is better described by a power law distribution than a normal distribution, CEO pay is not linked to firm performance and the patterns of CEO pay does not conform to patterns of distributive justice. Overall, the authors provide an important way to evaluate CEO pay outcomes. Thy set the stage for new avenues of research. Practical implications CEO pay is a highly controversial subject in the domain of corporate governance. This paper offers boards of directors and policymakers a method to better understand the success or failure of boardroom pay policies. Social implications CEO pay is an important social measure. Originality/value The authors’ paper is original by offering a method for determining over and underpayment of CEOs. The author in the present paper makes suggestions on how one might extend the research.

scholarly journals Heaping of Executive Compensation

2020 ◽  
Vol 32 (1) ◽  
pp. 177-201 ◽  
Author(s):  
Bjorn N. Jorgensen ◽  
Paige H. Patrick ◽  
Naomi S. Soderstrom
Keyword(s):  
Firm Performance ◽  
Executive Compensation ◽  
Boards Of Directors ◽  
Discrete Data ◽  
Cognitive Effort ◽  
Data Availability ◽  
The Public ◽  
External Stakeholders ◽  
Jel Classifications

ABSTRACT We investigate whether compensation grants are subject to “heaping,” the tendency of less informed individuals to provide round values when reporting estimates of discrete data. We document that an unexpectedly large number of CEOs receive round compensation (i.e., evenly divisible by 100,000 and/or 10,000). We investigate whether, consistent with heaping, the frequency of round compensation varies with proxies for boards of directors' effort in setting compensation. We find that round compensation is more common when boards have characteristics suggesting they provide weak oversight of compensation and thus face more uncertainty in estimating compensation. We also find less frequent round compensation when boards face stronger pressure from external stakeholders, encouraging boards to expend additional cognitive effort in setting compensation. Further, consistent with weak oversight of compensation, round compensation tends to be higher than non-round compensation. However, we do not find a consistent association between this higher, round compensation and future firm performance. JEL Classifications: G30; G41; M40; M46. Data Availability: Data are available from the public sources cited in the text.

CEO Compensation and Acquired and Acquiring Companies in Large Corporate Acquisitions

GIS Business ◽  
2016 ◽  
Vol 11 (5) ◽  
pp. 01-13
Author(s):  
Simon Yang
Keyword(s):  
Firm Performance ◽  
Executive Compensation ◽  
Ceo Compensation ◽  
Relative Sensitivity ◽  
Matched Sample ◽  
Executive Pay ◽  
Corporate Acquisitions ◽  
Acquiring Firms ◽  
Managerial Power ◽  
To Receive

This paper examines the relative sensitivity of CEO compensation of both acquiring and acquired firms in the top 30 U.S. largest corporate acquisitions in each year for the period of 2003 to 2012. We find that total compensation and bonus granted to executive compensation for acquired companies, not acquiring companies, are significantly related to the amount of acquisition deal even after the size and firm performance are controlled for. Both acquiring and acquired CEOs are found to make the significantly higher compensation than the matched sample firms in the same industry and calendar year. We also find that executives with higher managerial power, as measured by a lower salary-based compensation mix, prior to a corporate acquisition are more likely to receive a higher executive pay in the year of acquisition. The association between executive compensation and managerial power seems to be stronger for acquired firms than for acquiring firms in corporate acquisition. Overall, our findings suggest that corporate acquisition has higher impacts on executive compensation for acquired firm CEOs than for acquiring firm CEOs.

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