Board Committee Overlap and the Use of Earnings in CEO Compensation Contracts

Using proxy statement data describing the terms of compensation contracts, we examine how overlapping membership between compensation and audit committees influences the use of earnings metrics in compensation. Although research predicts that such overlap could either increase or decrease the reliance on earnings, we find that firms with overlapping directors rely less on earnings-based performance measures in incentive contracts without altering the overall level of performance-contingent cash bonuses. In addition, we provide evidence that firms substitute earnings measures with measures less subject to earnings management. Our findings are robust to potential alternative explanations, extend to an implicit relation between earnings and compensation for a larger sample, and are not driven by the tendency toward an overlapping committee structure more broadly. This paper was accepted by Suraj Srinivasan, accounting.

Jurisprudential characterization of the person infected with the Corona epidemic and the jurisprudential rulings resulting from his disposal in financial compensation contracts: Sale contract as a model: التوصيف الفقهي للمصاب بوباء كورونا والأحكام الفقهية المترتبة على تصرفه في عقود المعاوضات المالية: عقد البيع أنموذجا

This research aims to clarify the jurisprudential characterization of the person infected with the Corona epidemic, and to clarify the jurisprudential provisions resulting from his disposal in the sales contract; This is because the patient may suffer from obsessions that affect his behavior, and the researcher has combined the inductive approach by following the issues related to the topic of research, collecting and categorizing them, and the descriptive approach in terms of mentioning the sayings of the jurists in each issue with its evidence, with mentioning the sayings of the considered schools of jurisprudence, and the discussions on them as possible, and clarifying The most correct, and the reason for the weightingThe researcher came out with results, the most important of which are: The Corona epidemic can be described by what is called jurisprudence as a dreaded disease, selling the person infected with the Corona epidemic if he is not indebted to a foreigner or buying it from him for the same price is valid without the heirs’ permission, whether debtor or not, and it is also true if it is a favoritism of one third or less Pre-emption is established for the partner in the case of the patient selling to an heir or someone else if the sale is made at the same price, pre-emption is established for the intercessor if the purchaser is from the patient by favoritism and the intercessor is foreign, and the option of the condition and the fault of the person suffering from the epidemic is not lost if there is an excuse such as loss of consciousness or the like.

Accounting Performance Goals in CEO Compensation Contracts and Corporate Risk Taking

This study provides the first large-sample archival evidence on the impact of three commonly used accounting performance goals (thresholds, targets, and maximums) in CEO compensation contracts on corporate risk taking. Using proxy statement disclosure on performance goals for CEOs of U.S. public companies, we find that lower thresholds and higher maximums are associated with greater corporate risk taking, and these results are more pronounced when CEOs have greater incentives to achieve accounting performance goals or have lower innate risk aversion. In addition, we find that target difficulty is not significantly associated with corporate risk taking after controlling for thresholds and maximums. Finally, we find that CEO compensation contracts are more likely to have lower thresholds and higher maximums when risk taking is more value-enhancing or when R&D investment is more profitable, consistent with boards setting performance goals to induce an appropriate amount of corporate risk taking. Our study contributes to the accounting literature on target setting and corporate risk taking by identifying accounting performance goals as a tool in executive compensation contract design to influence risk taking. This paper was accepted by Suraj Srinivasan, accounting.

Contracting with Controllable Risk

We examine how executives' ability to control their firm's exposure to risk affects the design of their incentive-compensation contracts. Our natural experimental evidence shows that exchange-traded weather derivatives allow executives to control their firm's exposure to weather risk. Once these derivatives became available those executives who use them to hedge experience relative reductions in their total compensation and equity incentives. The decline in compensation is consistent with a reduction in the risk premium that executives receive for exposure to weather risk. The decline in equity incentives is consistent with the relation between risk and incentives shifting in a complementary direction when executives can better control their firm's exposure to risk. Collectively, our findings provide evidence that executives' ability to control their firms' exposure, and by extension their own, to an important source of risk influences the design of their incentive-compensation contracts.

Fair and Square: A Retention Model of Managerial Compensation

We propose a model of how the retention motive shapes managerial compensation contracts. Once employed, a risk-averse manager acquires imperfectly portable skills whose value is stochastic because of industry-wide demand shocks. The manager’s actions are uncontractible, and the perceived fairness of the compensation contract affects the manager’s motivation. If the volatility of profits is sufficiently large and outside offers are sufficiently likely, the equilibrium contract combines a salary with an own-firm stock option. The model’s predictions are consistent with empirical regularities concerning contractual shape, the magnitude of variable pay, the lack of indexation, and the prevalence of discretionary severance pay. This paper was accepted by Axel Ockenfels, behavioral economics and decision analysis.

Clawback Provisions in Executive Compensation Contracts

Clawbacks are contractual provisions in executive compensation contracts that allow for an ex post recoupment of variable pay if certain triggering conditions are met. As a result of regulatory responses to financial crises and corporate scandals, as well as growing shareholder pressure to implement effective measures against executive misbehaviour, the prevalence of such clauses has risen considerably in the recent past, beginning in the US after the 2000 financial crisis. As clawbacks have become a buzzword in the European debate about also ensuring good corporate governance beyond the financial sector, it is time to critically discuss the hopes that have been associated with various types of such provisions.

CEO compensation, incentive alignment, and carbon transparency

We examine whether chief executive officer compensation aligned with stakeholders’ interests is associated with enhanced corporate carbon transparency. Using an international sample obtained from the CDP, we find that corporate carbon transparency—as measured by both the propensity to voluntarily disclose carbon information and the quality and comprehensiveness of the disclosure—is greater when managers’ compensation contracts are better aligned with stakeholder interests. Further analyses indicate that this positive relationship is stronger in countries or regions with a code law legal system, with an inefficient rule of law, that show strong social norms toward climate change, that feature collectivist societies, and that have a long-term orientation. These findings indicate that the stakeholder agency problem of voluntary carbon disclosure can be addressed through executive incentives that are aligned with stakeholders’ interests.

Leading by Example in Socially Driven Organizations: The Effect of Transparent Leader Compensation Contracts on Following

Leading by example is one of the most powerful methods to encourage individuals to work toward a common objective. Despite the importance of leadership, little is known about how the effectiveness of leading by example depends on institutional features, such as the transparency and design of leaders' compensation contracts. We conduct two experiments to study this interplay between leadership and contracting in organizations with social missions (i.e., socially driven organizations). We find that under non-transparent contracts, leader contributions to the social objective positively influence follower contributions, reflecting effective leading by example. More importantly, under transparent contracts, the positive effect of leader contributions on follower contributions is diminished by an increase in the intensity of variable compensation and/or the amount of fixed compensation in the leader's contract. Our study informs the debate on pay transparency and demonstrates that organizations need to carefully consider the effects of contract design on leadership effectiveness.

Investor Sentiment and Stock Option Vesting Terms

Using the details of vesting terms, we document that stock options granted in high-investor-sentiment periods tend to have shorter vesting periods and durations and are more likely to vest completely or have a significantly larger fraction vested within one year of the grant date, relative to low-sentiment periods. We further find that the sentiment effect on vesting terms is more pronounced when firms are largely held by investors with short investment horizons (e.g., transient institutions). Moreover, short vesting terms in high-sentiment periods are positively associated with future mergers-and-acquisitions activity and capital expenditures. Overall, our findings are consistent with theoretical predictions that, in a speculative market, shareholders incentivize managers with short-term-oriented compensation contracts to induce managers to pursue actions maintaining overvaluation. This paper was accepted by Shiva Rajgopal, accounting.