CSR-Contingent Executive Compensation Incentive and Earnings Management

This paper empirically studies the connection between earnings management and corporate social performance, conditional on the existence of CSR-contingent executive compensation contracts, an emerging practice to link executive compensation to corporate social performance. We find that executives are more likely to manipulate earnings to achieve their personal compensation goals when CSR rating is low, as well as their CSR-contingent compensation. Because of public pressure on their excessive total compensation, corporate executives see no need to manipulate earnings to increase compensation when their CSR-contingent compensation is already high. Our results suggest that earnings management and CSR-contingent compensation are substitute tools to serve the interests of executives, which is an agency problem that was never previously studied. Additionally, we explore how managerial characteristics affect earnings management, driven by the incentive effects of CSR-linked compensation.

Stock Repurchases and Executive Compensation Contract Design: The Role of Earnings per Share Performance Conditions

ABSTRACT: We examine the link between firms’ stock repurchase activity and the presence of earnings per share (EPS) performance conditions in executive compensation contracts. Findings reveal a strong positive association between repurchases and EPS-contingent compensation arrangements. Further analysis suggests net benefits to shareholders from this association. Specifically, repurchasers experience larger increases in total payouts; the positive association between repurchases and cash performance is more pronounced for firms with EPS targets in the presence of surplus cash; undervalued firms with EPS targets are more likely to signal mispricing through a repurchase; and repurchasers with EPS conditions are associated with lower abnormal accruals. We find no evidence that EPS-driven repurchases impose costs on shareholders in the form of investment myopia.

Firm–Specific Human Capital and Governance in IPO Firms: Addressing Agency and Resource Dependence Concerns

Entrepreneurs with firm–specific human capital represent both a potential source of competitive advantage and a threat to appropriate the rents that are ultimately generated by a new venture. This situation presents interesting agency and resource dependence challenges. While potential investors in these ventures will want assurances that their interests are protected, they will also want to ensure that these key entrepreneurs remain with the organization. Using agency theory and resource dependence theory, we examine the types of governance mechanisms that are implemented in firms going through an initial public offering comparing those ventures which indicate a dependence on these critical entrepreneurs versus those that do not. Our analysis reveals that ventures exhibiting dependence on key entrepreneurs are associated with higher insider and outsider ownership by the board, greater start–up experience by the board, greater use of contingent compensation, and greater use of involuntary departure agreements.

Institutional Activism Types and CEO Compensation: A Time-Series Analysis of Large Canadian Corporations †

Using data from the Toronto Stock Exchange 300 companies for a 7-year period, the authors examine the role that institutional activism types and three salient board monitoring mechanisms— CEO/board chair split, board composition, and compensation committee independence—play in influencing CEO contingent compensation in Canada. The authors find that the effect of institutional activism, especially proxy based, is stronger on contingent CEO compensation and that its effects span a longer time. As opposed to the interactions of cumulative proxy-based activism with any of the three monitoring mechanisms, the interactions of cumulative non-proxy-based activism with both CEO/board chair split and compensation committee independence appear to influence CEO contingent compensation. The study's implications are given.

Understanding Principal-Agent Relationships: Evidence from Professional Hockey

This paper examines the professional hockey industry to explore the principles of agency theory. Using basic tenets derived from the agency literature and conditions specific to the hockey industry, a series of propositions are developed. These are investigated using data from industry documents, popular articles on hockey, and interviews with players, agents, team managers and other relevant industry stakeholders. The results suggested that concerns for agent reputation, agent competition, agent certification and salary disclosure have cumulatively reduced information asymmetry favoring the agent and have decreased the likelihood of agent opportunism. This has resulted in a decrease in the use of commissions by agents, but this form of performance contingent compensation remains the most widely used form of remuneration.

Industrial Relations in the U.S. Automobile Industry: An Illustration of Increased Decentralization and Diversity

This paper traces the evolution of employment relations in the U.S. auto industry over the post World War II period with particular emphasis on recent developments. There is a strong movement toward growing variation in employment relations within both the assembly and parts sectors of the auto industry. Variation appears both through the spread of more contingent compensation and team systems of work organization. There is also wide variety across plants and industry segments in basic employment systems including low wage, human resource, Japanese-oriented, and joint team-based approaches. Declining unionization is a particularly strong influence in the parts sector although nonunion operations have now spread to the assembly sector. While these trends are well illustrated by developments in the auto industry, they are trends common to other parts of the U.S. economy.