How Monitoring Affects The Structure Of Ceo Equity Based Compensation
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| Author | : Fan Yu |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2013 |
| Genre | : |
| ISBN | : |
I study how board and institutional monitoring affect the structure of equity-based compensation, specifically, the split between restricted stock and options. I find that firms adjust the structure of equity-based compensation to manage the total contractual incentives provided to their CEOs. Better monitored firms tend to have higher proportions of restricted stock in the CEO's total equity-based compensation. The higher ratio is associated with lower total contractual incentives and total pay level. The findings support the view that monitoring and contractual incentives are substitutes, rather than complements.
| Author | : Fan Yu |
| Publisher | : |
| Total Pages | : 75 |
| Release | : 2013 |
| Genre | : Executives |
| ISBN | : |
I find that a CEO who is better monitored tends to have smaller total contractual incentive pay, measured by the delta of the CEO's total portfolio. The realized wealth-to-performance sensitivity (WPS) of such a CEO, however, is not significantly different from that of a CEO who is worse monitored. The findings suggest that monitoring and contractual incentives can be substitutes, rather than complements assumed by prior corporate governance research. I further study how a firm manages the total contractual incentives provided to its CEO. I find that a firm adjusts the structure of equity-based compensation, specifically, the split between restricted stock and options, to manage it. Better monitored firms tend to have higher proportions of restricted stock in the CEO's total equity-based compensation. The higher ratio is associated with lower total contractual incentives and total pay level. The findings suggest that how a board provides equity-based compensation matters.
| Author | : JANG WOOK LEE |
| Publisher | : |
| Total Pages | : 116 |
| Release | : 2019 |
| Genre | : |
| ISBN | : |
This dissertation contains three studies relating to executive equity compensation. In the first study (Chapter 2), I investigate whether firms adjust CEO's equity incentives in response to the firms' prior earnings management. I find that the risk-taking incentives from new equity grants are lower for firms with higher prior real earnings management (REM), but not for firms with higher accruals-based earnings management (AEM). My finding suggests that boards perceive the consequences of REM are more value-reducing than AEM and that they take stronger actions against REM by reducing the CEO's risk-taking incentives arising from equity incentives. In addition, I this result is driven by firms with higher institutional ownership, suggesting that institutional investors play an important monitoring role in structuring executive compensation contracts to limit the CEOs' value-reducing behaviors. In the second study (Chapter 3), I investigate how the firm's downside risk and upside potential differentially affect the choice between cash and equity compensation and the choice between stock options and restricted stock compensation. First, I find that, as downside risk (upside potential) increases, boards grant more cash compensation (more equity compensation) and less equity compensation (less cash compensation). This is consistent with the idea that, when downside risk increases, a CEO requires a higher risk premium for equity compensation and, thus, the board shifts compensation away from equity compensation to cash compensation. The reverse is true for the increased upside potential. When upside potential increases, the observed compensation contract will contain less cash and more equity compensation. Second, I find that the proportion of CEO option compensation increases with downside risk and decreases with upside potential. This is because, when downside risk increases, the probability of a stock option finishing out of the money (i.e., zero intrinsic value) increases but restricted stock has positive value as long as the stock price is positive. In contrast, when upside potential increases, because of stock options' leverage effect, a CEO will prefer stock options to restricted stock. In the third study (Chapter 4), I study how executive stock options differentially affect the firm's systematic and idiosyncratic risk by exploiting the passage of Financial Accounting Standard (FAS) 123R as an exogenous shock to CEO option compensation. I find that option-based compensation and the proportion of idiosyncratic risk in total risk is negatively associated. This is consistent with the idea that since, unlike risk-neutral investors, risk-averse CEOs have limited ability to eliminate firm specific idiosyncratic, idiosyncratic risk is unwanted by under-diversified CEOs. Thus, CEO option compensation creates incentives to increase the firm's systematic risk relative to the firm's idiosyncratic risk.
| Author | : Lucian A. Bebchuk |
| Publisher | : Harvard University Press |
| Total Pages | : 308 |
| Release | : 2004 |
| Genre | : Business & Economics |
| ISBN | : 9780674020634 |
The company is under-performing, its share price is trailing, and the CEO gets...a multi-million-dollar raise. This story is familiar, for good reason: as this book clearly demonstrates, structural flaws in corporate governance have produced widespread distortions in executive pay. Pay without Performance presents a disconcerting portrait of managers' influence over their own pay--and of a governance system that must fundamentally change if firms are to be managed in the interest of shareholders. Lucian Bebchuk and Jesse Fried demonstrate that corporate boards have persistently failed to negotiate at arm's length with the executives they are meant to oversee. They give a richly detailed account of how pay practices--from option plans to retirement benefits--have decoupled compensation from performance and have camouflaged both the amount and performance-insensitivity of pay. Executives' unwonted influence over their compensation has hurt shareholders by increasing pay levels and, even more importantly, by leading to practices that dilute and distort managers' incentives. This book identifies basic problems with our current reliance on boards as guardians of shareholder interests. And the solution, the authors argue, is not merely to make these boards more independent of executives as recent reforms attempt to do. Rather, boards should also be made more dependent on shareholders by eliminating the arrangements that entrench directors and insulate them from their shareholders. A powerful critique of executive compensation and corporate governance, Pay without Performance points the way to restoring corporate integrity and improving corporate performance.
| Author | : John S. Beasley |
| Publisher | : Edward Elgar Publishing |
| Total Pages | : 553 |
| Release | : 2012-01-01 |
| Genre | : Business & Economics |
| ISBN | : 1781005109 |
Research on executive compensation has exploded in recent years, and this volume of specially commissioned essays brings the reader up-to-date on all of the latest developments in the field. Leading corporate governance scholars from a range of countries set out their views on four main areas of executive compensation: the history and theory of executive compensation, the structure of executive pay, corporate governance and executive compensation, and international perspectives on executive pay. The authors analyze the two dominant theoretical approaches – managerial power theory and optimal contracting theory – and examine their impact on executive pay levels and the practices of concentrated and dispersed share ownership in corporations. The effectiveness of government regulation of executive pay and international executive pay practices in Australia, the US, Europe, China, India and Japan are also discussed. A timely study of a controversial topic, the Handbook will be an essential resource for students, scholars and practitioners of law, finance, business and accounting.
| Author | : Xuejiao Liu |
| Publisher | : Open Dissertation Press |
| Total Pages | : |
| Release | : 2017-01-27 |
| Genre | : |
| ISBN | : 9781361344576 |
This dissertation, "The Effects of CEO Equity-based Compensation on Firm Promptness in Remedying Material Weaknesses in Internal Control" by Xuejiao, Liu, 刘雪娇, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: This thesis investigates how chief executive officer (CEO) equity incentives affect the remediation of material weaknesses (MWs) in internal control. First, we predict that the sensitivity of CEO stock and stock option portfolios to stock price (CEO price sensitivity or delta) has a positive impact on firm promptness in remedying MWs, because CEOs whose personal wealth is tied to stock price suffer losses from negative market reactions to the public disclosure of MWs. Second, we predict that the sensitivity of CEO stock option portfolio to stock-return volatility (CEO volatility sensitivity or vega) has a negative impact on firm promptness in remedying MWs, as firms with internal control weaknesses are associated with higher information and operating risks that manifest in stock return volatility. Our empirical results, based on a sample of firms disclosing MWs in internal control under the Sarbanes-Oxley Act (SOX) during November 15, 2003 and August 27, 2006, are consistent with the above predictions. We further provide evidence that an effective board of directors could mitigate the undesirable, negative impact of CEO volatility sensitivity on MWs remediation. We measure firms' promptness in remedying MWs based on their subsequent internal control audit opinions (e.g., Ashbaugh-Skaife et al. 2008; Goh 2009); and CEO price (volatility) sensitivity as the dollar change in CEO stock and option portfolios (option portfolio) from a 1 percent change in stock price (Core and Guay 2002). This thesis is innovative with respect to the prediction and evidence of the opposing effects from CEO price and volatility sensitivities on internal control quality. This new evidence contributes to the literature that examines managerial incentives embedded in stock-based and option-based compensation plans in various economic contexts (e.g., Knopf et al. 2002; Coles et al. 2006; Low 2009; Armstrong et al. 2013). Our findings suggest that when stock constitutes a major part of CEO compensation, the mandatory disclosure requirement of SOX provides a channel for the stock market to discipline CEO. However, when options dominate CEO compensation, volatility sensitivity and the associated risk-taking incentive can cause CEOs to delay rectifying internal control deficiencies. These results have interesting policy implications for regulators and firms concerning mandatory disclosure and compensation design. Moreover, this thesis contributes to the broad literature on corporate governance by documenting an interaction between corporate governance and CEO incentives, namely that strong corporate governance mitigates the undesirable risking-taking incentive caused by CEO option holdings. Overall, this thesis deepens our understanding on mechanisms through which regulators, firm executives, and boards of directors strengthen internal control over financial reporting in the post-SOX era. DOI: 10.5353/th_b5089945 Subjects: Employee stock options Corporate governance Compensation management Chief executive officers - Salaries, etc Incentives in industry
| Author | : Benjamin Hermalin |
| Publisher | : Elsevier |
| Total Pages | : 762 |
| Release | : 2017-09-18 |
| Genre | : Business & Economics |
| ISBN | : 0444635408 |
The Handbook of the Economics of Corporate Governance, Volume One, covers all issues important to economists. It is organized around fundamental principles, whereas multidisciplinary books on corporate governance often concentrate on specific topics. Specific topics include Relevant Theory and Methods, Organizational Economic Models as They Pertain to Governance, Managerial Career Concerns, Assessment & Monitoring, and Signal Jamming, The Institutions and Practice of Governance, The Law and Economics of Governance, Takeovers, Buyouts, and the Market for Control, Executive Compensation, Dominant Shareholders, and more. Providing excellent overviews and summaries of extant research, this book presents advanced students in graduate programs with details and perspectives that other books overlook. Concentrates on underlying principles that change little, even as the empirical literature moves on Helps readers see corporate governance systems as interrelated or even intertwined external (country-level) and internal (firm-level) forces Reviews the methodological tools of the field (theory and empirical), the most relevant models, and the field’s substantive findings, all of which help point the way forward
| Author | : Zhilan Feng |
| Publisher | : |
| Total Pages | : |
| Release | : 2016 |
| Genre | : |
| ISBN | : |
Our objective in this paper is to investigate the relationship between institutional ownership and CEO compensation structure of REITs. Based on detailed analyses of data on institutional ownership, performance, CEO and board characteristics over the 10 year period 1998-2007, we find significant evidence that large institutions influence governance through CEO compensation -- greater institutional ownership is associated with greater emphasis on incentive-based compensation (higher pay-performance sensitivity of CEO compensation), and higher cash and total compensation for CEOs. Further, we find that institutions are less active when managers are performing in a superior fashion. Two important conclusions emerge from the analysis. First, similar to unregulated firms, institutional owners do act as monitors in REITs. Broadly, this result suggests that governance is necessary for REITs. Second, institutional investors set a high pay-performance sensitivity for CEOs, but are willing to pay higher cash compensation to induce managers to take risk.
| Author | : Jennifer Carpenter |
| Publisher | : Springer Science & Business Media |
| Total Pages | : 159 |
| Release | : 2013-04-17 |
| Genre | : Business & Economics |
| ISBN | : 1475751923 |
Executive compensation has gained widespread public attention in recent years, with the pay of top U.S. executives reaching unprecedented levels compared either with past levels, with the remuneration of top executives in other countries, or with the wages and salaries of typical employees. The extraordinary levels of executive compensation have been achieved at a time when U.S. public companies have realized substantial gains in stock market value. Many have cited this as evidence that U.S. executive compensation works well, rewarding managers who make difficult decisions that lead to higher shareholder values, while others have argued that the overly generous salaries and benefits bear little relation to company performance. Recent conceptual and empirical research permits for the first time a truly rigorous debate on these and related issues, which is the subject of this volume.
| Author | : Luis Gomez-Mejia |
| Publisher | : Routledge |
| Total Pages | : 331 |
| Release | : 2008-08-06 |
| Genre | : Business & Economics |
| ISBN | : 1135974276 |
Compensation is a systematic approach to providing monetary value and other benefits to employees in exchange for their work and service. But pay and conditions becomes a more complicated issue for multinational companies which operate across different locations and cultures, and who employ an increasingly diverse range of personnel. This unique new text gives in-depth analysis of the key themes and emerging topics faced by global enterprises when dealing with compensation issues. The first section, ‘Foundation Concepts’, looks at the design of compensation packages for a number of different employee groups; from supply chain management to research and development, as well as ethical considerations when dealing with a global context, and the concept of performance related pay. The second section, ‘Global Applications’, looks at current debates in the field, including the influence of national cultures on compensation schemes, discrepancies in CEO pay, and contrasts in wages between industry types. Part of Routledge’s Global HRM, this is is an invaluable text for any student of HRM, Business and Management, or any practitioner working in this area.
