REFLECTIONS OF CORPORATE GOVERNANCE ON PAY-PERFORMANCE SENSITIVITY: A NEW PERSPECTIVE

ABSTRACT Purpose: This research investigates whether the characteristics of corporate governance (executive compensation, board composition, ownership structure, and control) influence the sensitivity of remuneration to firms’ performance, the so-called pay-performance sensitivity. Originality/value: This study brings to the literature a new perspective on the interaction of corporate governance mechanisms aligned with the concept of pay-performance sensitivity. The study shows that governance instruments are not isolated but rather interrelated and interdependent. Design/methodology/approach: The study sample was composed of Brazil 100 Index (IBRX 100) companies listed on B3 from 2014 to 2018. Data were extracted from the Economatica® database, and the reference forms were accessed on the Securities and Exchange Commission of Brazil’s (CVM) website. We use panel data regression models with fixed and random-effects models. Findings: The board composition (represented by the CEO/Chairman duality) increases the pay-performance sensitivity, while the ownership concentration reduces it. In addition, a greater presence of independent members on the board reduces the variation in executive compensation.

Genetic optimization for engine combustion system calibration: A case study of optimization performance sensitivity to algorithm search parameters

The use of genetic optimization algorithms (GOA) has been shown to significantly reduce the resource intensity of engine calibration, motivating investigation into the development of these methods. The objective of this work was to quantify the sensitivity of GOA performance to the algorithm search parameter values, in a case study of engine calibration. A GOA was used to calibrate four combustion system control parameters for a direct-injection gasoline engine at a single operating condition, with an optimization goal to minimize brake specific fuel consumption (BSFC) for a specified engine-out NOx concentration limit. The calibration process was repeated for two NOx limit values and a wide range of values for five GOA search parameters, including the number of genes, mutation rate, and convergence criteria. Results indicated GOA performance is very sensitive to algorithm search parameter values, with converged calibrations yielding BSFC values from 1 to 14% higher than the global minimum value, and the number of iterations required to converge ranging from 10 to 3,000. Broadly, GOA performance sensitivity was found to increase as the NOx limit was decreased from 4,500 to 1,000 ppm. GOA performance was the most sensitive to the number of genes and the gene mutation rate, whereas sensitivity to convergence criteria values was minimal. Identification of one set of algorithm search parameter values which universally maximized GOA performance was not possible as ideal values depended strongly on engine behavior, NOx limit, and the maximum level of error acceptable to the user.

Influence of Coolant on Cooling Performance Sensitivity of Internally Convective Turbine Vane

Based on the Brayton cycle for gas-turbine engines, the high thermal efficiency and power output of a gas-turbine engine can be obtainable when the gas-turbine engine operates at high turbine inlet temperatures. However, turbine components e.g., inlet guide vane, rotor blade, and stator vane request high cooling performance. Typically, internal cooling and film cooling are two effective techniques that are widely used to protect high thermal loads for the turbine components in a state-of-the-art gas turbine. Consequently, the high thermal efficiency and power output can be obtained, and the turbine lifespan can be prolonged, also. On top of that, a comprehensive understanding of flow and heat transfer phenomena in the turbine components is very important. As a result, both experiments and simulations have been used to improve the cooling performance of the turbine components. In fact, the cooling air used in the internal cooling and film cooling is partially extracted from the compressor. Therefore, variations in the cooling air affect the cooling performance of the turbine components directly. This paper presents a numerical study on the influence of the cooling air on cooling-performance sensitivity of an internally convective turbine vane, MARK II using the computational fluid dynamics (CFD)/conjugate heat transfer (CHT) with the SST k-ω turbulence model. Result comparisons are conducted in terms of pressure, temperature, and cooling effectiveness under the effects of the inlet temperature, mass flow rate, turbulence intensity, and flow direction of the cooling air. The cooling-performance sensitivity to the coolant parameters is shown through variations of local cooling effectiveness, and area and volume-weighted average cooling effectiveness.

Non-financial performance measures and pay-performance sensitivity

Purpose This study aims to examine whether chief executive officer (CEO) pay-performance sensitivity to shareholder wealth is related to the use of non-financial performance measures in incentive contracts. Design/methodology/approach Using hand-collected performance measure data in a sample of S&P 500 firms across the period 1994–2010, this study investigates the sensitivity of CEO bonus and cash pay to shareholder wealth of firms that use non-financial performance (NFPM) measures of varying types and contractual weights in their bonus contracts along with financial measures (NFPM firms) in comparison to that of firms using financial measures only (FPM firms). Findings This study finds evidence that the pay-performance sensitivity is stronger in NFPM firms than in FPM firms. These results are driven by the use of CEO individual goals and operational efficiency. Furthermore, when using environmental, social and governance factors, the pay-performance sensitivity is stronger in terms of accounting performance only. This study also finds that using NFPM enhances pay-performance sensitivity more as their contractual weights increase and as financial risk increases. Practical implications These findings are important to stakeholders, and especially regulators in understanding incentive effects of alternative performance measures. This study also sheds light on what types of non-financial measures are better in helping firms align CEOs’ incentives to shareholders’ interests. Originality/value This study contributes to prior research on benefits of non-financial information within the context of executive compensation. This study presents original results about the effects of contractual weights of non-financial measures and financial risk on CEO pay-performance sensitivity. This study also presents new insights regarding how different types of non-financial measures affect CEO pay-performance sensitivity.

Blockholders and corporate governance: evidence from China’s split-share-structure reform

Purpose Proper empirical tests of the effect of blockholders’ monitoring incentives on corporate governance are scant in the literature because the relationship between ownership structure and enforcement of corporate governance mechanisms is bidirectional. This study aims to address the endogeneity issue by examining the effect of blockholding on executive turnover–performance sensitivity, using the split-share-structure (SSS) reform in China as an exogenous shock to blockholders’ monitoring incentives. Design/methodology/approach This study uses a logit model for estimating the change in executive turnover–performance sensitivity around the SSS reform. Sub-sample analysis is conducted to examine whether the impact of SSS reform on the turnover-performance sensitivity is stronger for firms with more contestable blockholders who might consider stock liquidity, risk sharing and diversification in their monitoring/trading decisions. Findings Top executive turnover, defined as CEO or board chair turnover, becomes less sensitive to firm operating performance after the reform, mainly for firms with contestable blockholders prior to the reform. Stock liquidity and blockholders’ demand for diversification can explain the impact of contestable blockholding. Moreover, blockholding is sensitive to firm operating performance after the reform but not before it. Originality/value With few exceptions, most studies in the blockholding literature focus on the effect of blockholder monitoring on firm value. Examining an exogenous shock to blockholding, this paper provides a set of new evidence for the impact of blockholding on executive turnover–performance sensitivity. The results call for more evidence of the impact of blockholding on executive turnover from other markets.

Pay-performance sensitivity and corporate governance mechanisms: evidence from Tunisia

Purpose The purpose of this study is to analyze the CEO compensation sensitivity to firm performance, termed as the pay-for-performance sensitivity (PPS) in the Tunisian context and to test the robustness of this relationship when corporate governance (CG) mechanisms are considered. Design/methodology/approach The consideration of past executive pay as one of the explanatory variables makes this estimation model a dynamic one. Furthermore, to avoid the problem of endogeneity, this study uses the system-GMM estimator developed by Blundell and Bond (1998). For robustness check, this study aims to use a simultaneous equation approach (three-stage least squares [3SLS]) to estimate the link between performance and CEO pay with a set of CG mechanisms to control for possible simultaneous interdependencies. Findings Using a sample of 336 firm-years from Tunisia over the 2009–2015 periods, this study finds strong evidence that the pay-performance relationship is insignificant and negative, and it becomes more negative or remains insignificant after introducing CG mechanisms consistently with the managerial power approach. The findings are robust to the use of alternative performance measures. This study provides new empirical evidence that CEOs of Tunisian firms abuse extracting rents independently of firm performance. Originality/value This study contributes to the unexamined research on PPS in a frontier market. This study also shows the ineffectiveness of the Tunisian CG structure and thus recommends for the legislator to impose a mandatory CG guide.