Compensation Committees and CEO Compensation Incentives in US Entrepreneurial Firms

2004 ◽  
Author(s):  
Martin J. Conyon ◽  
Lerong He
Keyword(s):  
Ceo Compensation ◽  
Entrepreneurial Firms ◽  
Compensation Committees ◽  
Compensation Incentives

scholarly journals Can compensation committees effectively mitigate the CEO horizon problem? The role of co-opted directors

2020 ◽  
Vol 34 (1) ◽  
pp. 1-21
Author(s):  
Ruonan Liu
Keyword(s):  
Corporate Governance ◽  
Research And Development ◽  
Empirical Evidence ◽  
Design Methodology ◽  
Ceo Compensation ◽  
Content Type ◽  
Horizon Problem ◽  
Accruals Management ◽  
Compensation Committees

Purpose This study aims to examine whether compensation committees dominated by co-opted directors are less effective in mitigating the CEO horizon problem. Design/methodology/approach The author uses a sample of 7,280 firm-year observations from 1998 to 2011. Findings In this study, the author finds evidence of opportunistic research and development (R&D) reduction and accruals management in firms with retiring CEOs and compensation committees dominated by co-opted directors. Moreover, it is found that R&D reduction and income-increasing accruals are less discouraged when determining the compensation for retiring CEOs by compensation committees that are dominated by co-opted directors. The results suggest that compensation committees dominated by co-opted directors are less effective in adjusting CEO compensation to mitigate the CEO horizon problem. Originality/value The study reveals that co-opted directors are weak monitors. Moreover, the study adds empirical evidence to the debate of organizations’ CEO horizon problem. Finally, the study adds to the literature on corporate governance, revealing that compensation committees play an important role in mitigating an organization’s CEO horizon problem by adjusting CEO compensation.

Compensation Committees and CEO Compensation Incentives in U.S. Entrepreneurial Firms

2004 ◽  
Vol 16 (1) ◽  
pp. 35-56 ◽  
Author(s):  
Martin J. Conyon ◽  
Lerong He
Keyword(s):  
Ceo Compensation ◽  
Theoretical Models ◽  
Power Model ◽  
Entrepreneurial Firms ◽  
Compensation Committee ◽  
Ceo Incentives ◽  
Optimal Contracting ◽  
Managerial Power ◽  
Ceo Pay ◽  
Contracting Model

This study uses a sample of IPO firms to investigate the relation between the compensation committee, CEO compensation, and CEO incentives. We investigate two theoretical models: the three-tier optimal contracting model and the managerial power model. We find support for the three-tier agency model. The presence of significant shareholders on the compensation committee (i.e., those with share stakes in excess of 5 percent) is associated with lower CEO pay and higher CEO equity incentives. Firms with higher paid compensation committee members are associated with greater CEO compensation and lower incentives. The managerial power model receives little support. We find no evidence that insiders or CEOs of other firms serving on the compensation committee raise the level of CEO pay or lower CEO incentives.

Managerial incentives and accounts receivable management policy

2018 ◽  
Vol 44 (7) ◽  
pp. 865-884 ◽  
Author(s):  
Haibo Yao ◽  
Yiling Deng
Keyword(s):  
Ceo Compensation ◽  
Market Value ◽  
Equity Market ◽  
Management Policy ◽  
External Financing ◽  
Content Type ◽  
Accounts Receivable ◽  
Negative Relation ◽  
Regression Methods ◽  
Compensation Incentives

Purpose Previous research has documented that high vega CEOs increase R&D investment (Coles et al., 2006) and liquidity (Liu and Mauer, 2011), but provided little clue about how those CEOs get the necessary resources to support those choices. Frankel et al. (2016) highlight firms’ compensation incentives to manipulate working capital components, the authors use accounts receivable as an example to illustrate. The paper aims to discuss these issues. Design/methodology/approach The authors employ sorting, and various regression methods and adjust the Faulkender and Wang (2006) model to test two hypotheses. Findings The authors find a negative relation between managerial risk-taking incentives (vega) and accounts receivable and a negative relation between vega and the market value of accounts receivable to shareholders. Research limitations/implications The authors do not compare PPE investment, external financing with accounts receivable to figure out whether accounts receivable is better and more efficient to adjust. Practical implications The evidence primarily supports the internal allocation hypothesis that high vega managers reduce the accounts receivable investment and that the equity market discounts the value of accounts receivable for high vega firms. Social implications Equity holders should consider the internal allocation effect when setting CEO compensation incentives, also they should be cautious when CEOs change their accounts receivable management policy. The equity market discounts the value of accounts receivable for high vega firms. Originality/value This study provides important information about the CEO compensation incentives, a new explanation about the formation of accounts receivable management policy, and the market value implication of accounts receivable.

R&D Expenditures and CEO Compensation

2004 ◽  
Vol 79 (2) ◽  
pp. 305-328 ◽  
Author(s):  
Shijun Cheng
Keyword(s):  
Ceo Compensation ◽  
Total Compensation ◽  
Small Loss ◽  
Annual Total ◽  
Compensation Committees

This study investigates whether compensation committees seek to prevent opportunistic reductions in R&D expenditures. I hypothesize that changes in R&D spending are more strongly positively associated with changes in CEO compensation in two situations: (1) when the CEO approaches retirement, and (2) when the firm faces a small earnings decline or a small loss. Consistent with these hypotheses, the results indicate that the association between changes in R&D spending and changes in the value of CEO annual option grants is significantly positive in the above two situations, and insignificant otherwise. Similar results hold for changes in CEO annual total compensation. The results also show that neither situation is associated with reduced R&D spending. Overall, these findings suggest that compensation committees respond to, and effectively mitigate, potential opportunistic reductions in R&D spending.

The Interrelationships Between Information Technology Spending, CEO Equity Incentives, and Firm Value

2014 ◽  
Vol 28 (2) ◽  
pp. 41-65 ◽  
Author(s):  
Adi Masli ◽  
Vernon J. Richardson ◽  
Juan Manuel Sanchez ◽  
Rodney E. Smith
Keyword(s):  
Information Technology ◽  
Firm Value ◽  
Ceo Compensation ◽  
It Governance ◽  
Business Value ◽  
Risky Asset ◽  
Equity Compensation ◽  
Equity Incentives ◽  
Compensation Incentives

ABSTRACT We examine the interrelationships between information technology spending, CEO equity compensation incentives, and firm value. We present two related pieces of evidence. First, we find that CEO equity incentives are associated with IT spending, suggesting that CEOs with higher incentives are more likely to invest in a risky asset such as IT. Second, we find that the association between IT spending and business value is stronger for firms that grant CEOs higher equity incentives. Our study contributes to the CEO compensation and IT governance literatures.

CEO pay sensitivities in innovative firms

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Raghavan J. Iyengar ◽  
Malavika Sundararajan
Keyword(s):  
Firm Performance ◽  
Performance Measures ◽  
Ceo Compensation ◽  
Critical Role ◽  
Positive Association ◽  
Executive Pay ◽  
Content Type ◽  
Accounting Performance ◽  
Innovative Firms ◽  
Compensation Committees

PurposeThis study aims to investigate whether compensation committees provide the chief executive officers (CEOs) with incentives to undertake “income-decreasing” but potentially “value-enhancing” innovation expenditures. The authors specifically analyze pay–performance relationships for innovative firms relative to all other firms. This study is critical because innovation is expensive and has uncertain outcomes.Design/methodology/approachUsing alternative accounting performance measures and market performance measures, the authors estimate an econometric model of CEO compensation in innovative firms that incorporates the interaction of endogenous innovation and firm performance.FindingsThe authors document an incremental positive association between changes in accounting performance measures and CEO compensation changes in innovative firms relative to other firms. This sensitivity of executive pay to firm performance is higher for firms that innovate. These results support the hypothesis that compensation committees provide incentives to carry out risky innovation by tying executive compensation more closely to firm performance. This finding survives a battery of sensitivity tests.Practical implicationsThe implications of this study are significant. Capital needs to support risky research and development investments (Tidd and Besant, 2018; Baldwin and Johnson, 1995) form the basis of innovative firms' operations. Considering these expenses, if CEOs, who play a critical role in the scanning, adapting and implementing innovative needs in a firm, are not protected and compensated for making risky choices, the entire investment itself will be threatened. Hence, the findings reiterate and support earlier findings that speak to the importance of compensating CEOs to make high-risk investments that will lead to long-term economic and financial gains for the firm when the innovative behaviors result in competitive market shares and profits.Originality/valueThe original work is related to the investigation of pay–performance sensitivity in the presence of innovation, which has not been fully investigated in prior literature.

scholarly journals The Non-Linear Relationship Between CEO Compensation Incentives And Corporate Tax Avoidance

2017 ◽  
Vol 33 (3) ◽  
pp. 439-450 ◽  
Author(s):  
Seungmin Chee ◽  
Wooseok Choi ◽  
Jae Eun Shin
Keyword(s):  
Executive Compensation ◽  
Linear Relationship ◽  
Ceo Compensation ◽  
Tax Avoidance ◽  
Corporate Tax ◽  
Non Linear ◽  
Prior Literature ◽  
Low Levels ◽  
Risk Reducing ◽  
Compensation Incentives

This study examines the effect of CEO compensation incentives on corporate tax avoidance. Unlike prior literature that assumes a monotonic relation between executive compensation incentives and tax avoidance, we find a non-linear relation between the two. Specifically, we find that CEO compensation incentives exhibit a positive relation with corporate tax avoidance at low levels of compensation incentives, whereas they show a negative relation at high levels of compensation incentives. We further find that the non-linear relationship between CEO compensation incentives and corporate tax avoidance does not exist for the subsample of S&P500 firms. Collectively, we provide evidence of the two counter effective forces, namely, - the incentive alignment effect and the risk-reducing effect, - that help explain the effect of CEO compensation incentives on tax avoidance.

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