{"title":"The Impact of the Dodd-Frank Act on Executive Compensation","authors":"Samuel Liu","doi":"10.2139/SSRN.1996257","DOIUrl":"https://doi.org/10.2139/SSRN.1996257","url":null,"abstract":"Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) on July 21, 2010, which became effective for shareholder meetings held on, or after January 21, 2011. The Dodd-Frank Act requires U.S. public companies to conduct an initial advisory, non-binding vote on executive compensation called say-on-pay and a subsequent vote on the frequency of say-on-pay. This study investigates the voting pattern of the say-on-pay and the say-on-frequency and examines the impact of the Dodd-Frank Act on the amount and structure of executive compensation. The say-on-pay and say-on-frequency patterns of over 1,700 companies from the ExecuComp database are investigated using the U.S. Securities and Exchange Commission Forms DEF 14A, 8-K, and 10-Q. A further study of S&P 500 companies, from 1992 – 2009, found in the Wharton Research Data Services is used in the regression analysis to forecast executive compensation. Results show that 98% of the sample firms are supported by a majority of shareholders who voted on executive compensation, while 2% of the sample firms failed the say-on-pay. Preliminary results show that 60% of companies initially recommended every three years as the preferred say-on-frequency, while the shareholders voted in favor of every one year (90% of the companies). However, company recommendations for say-on-frequency have grown from 60% in favor of every three years in March 2011 to 63% in favor of every one year in December 2011, suggesting that companies are responding to shareholder pressure. Further results indicate that executive total cash compensation (salary plus bonus) has been decreasing since 2006. Additional analyses, comparing 2010 to 2009 total cash compensation, show that firms reduced total cash compensation in 2010 prior to the advisory vote on executive compensation.","PeriodicalId":228319,"journal":{"name":"ERN: CEO & Executive Motivation & Incentives (Topic)","volume":"101 39","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-01-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"113945842","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Does CEO-Specific Performance Impact Corporate Decisions? Evidence from Convertible Debt Issues","authors":"Chaoli Guo","doi":"10.2139/ssrn.2264907","DOIUrl":"https://doi.org/10.2139/ssrn.2264907","url":null,"abstract":"A firm’s convertible debt issues are not only determined by the fundamentals of the firm such as past stock performance, but also related to whether this performance is realized during the tenure of current CEO who decides the issues. I define the performance that the current CEO achieves in the firm ever since the CEO comes to the helm as CEO-specific performance. Higher CEO-specific performance leads to (1) a higher probability of convertible issues, and (2) a less negative abnormal stock return in response to the convertible issue announcements, controlling for other firm characteristics. These evidences show that CEO-specific performance serves as a credible information signal to influence the adverse selection costs between the firm and outside investors in convertible debt financing.","PeriodicalId":228319,"journal":{"name":"ERN: CEO & Executive Motivation & Incentives (Topic)","volume":"136 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131564555","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Joint Determination of Leverage and Managerial Incentive Compensation: Theory and Evidence","authors":"Ryoonhee Kim","doi":"10.2139/ssrn.2152178","DOIUrl":"https://doi.org/10.2139/ssrn.2152178","url":null,"abstract":"This paper investigates how capital structure and managerial compensation are jointly determined within a contingent claims model where the two interact through manager-stockholder and stockholder-bondholder conflicts. In the presence of frictions, agency conflicts affect investment decisions and, hence, firm value. Rational stockholders set financial policies and managerial compensation simultaneously, to minimize the distortion caused by these conflicts. This joint optimization creates a tradeoff between leverage and managerial incentive compensation: equity holders would avoid setting both high. The model predicts that due to the tradeoff between the two, key firm characteristics should move the two in opposite directions. This article also reports empirical evidence strongly supporting the model by estimating simultaneous equations of market leverage and pay-performance sensitivity. The negative correlation between the two dependent variables is captured in the opposite effects from key firm characteristics. After controlling for the tradeoff, market leverage and pay-performance sensitivity have a positive relation.","PeriodicalId":228319,"journal":{"name":"ERN: CEO & Executive Motivation & Incentives (Topic)","volume":"100 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115691310","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Earnings Management, Time Preferences, and Long Term Decisions","authors":"Wolfgang Schultze, Andreas Weiler","doi":"10.2139/ssrn.1603464","DOIUrl":"https://doi.org/10.2139/ssrn.1603464","url":null,"abstract":"This paper studies the impact of tightening accounting standards on an impatient manager's long-term investment decisions under earnings based performance evaluation. We analyze how the manager's possibility to influence current earnings will affect his investment decision-making. We examine a two-period agency model in which the manager's efforts during the first period have short- and long-term consequences. We find that tighter accounting regulation intensifies underinvestment problems. Tighter accounting standards increase the manager's personal costs of bringing forward investment project benefits, which results in reduced incentives for the manager to supply effort on investment activities. In turn, discretion in accounting standards allows managers to anticipate the future benefits of their investment decisions in their current performance measure. This result holds valid even when compensation contracts additionally include other performance measures than regulated accounting numbers.","PeriodicalId":228319,"journal":{"name":"ERN: CEO & Executive Motivation & Incentives (Topic)","volume":"37 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-06-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125600922","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Investor Protection and Capital Expenditures Under Endogenous Time Inconsistency","authors":"R. Gregory","doi":"10.2139/ssrn.1802539","DOIUrl":"https://doi.org/10.2139/ssrn.1802539","url":null,"abstract":"Underinvestment in value-enhancing projects is considered a major problem in corporate management. It is usually blamed on information asymmetry and agency costs. In this paper, a model is proposed that shows that even without information asymmetry and agency costs, there is a pronounced tendency for managers to underinvest due to a positive probability of their being replaced. It is also shown that investor protection legislation, if it does not eliminate the possibility of being replaced, does not lower the likelihood of underinvestment.","PeriodicalId":228319,"journal":{"name":"ERN: CEO & Executive Motivation & Incentives (Topic)","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-03-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115258204","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"CEO Compensation Among Firms Controlled by Large Shareholders: Evidence from Emerging Markets","authors":"Francisco A. Gallego, B. Larrain","doi":"10.2139/ssrn.1718704","DOIUrl":"https://doi.org/10.2139/ssrn.1718704","url":null,"abstract":"Using a novel data base for three emerging markets, we find that the type of large shareholder matters for CEO compensation. In particular, we find a compensation premium of about 30 log points for professional (not controller-related) CEOs working in firms controlled by a family compared to firms controlled by other large shareholders. The premium cannot be explained away by standard firm characteristics, observable executive skills (e.g., education or tenure), or the compensation of the CEO in her former job. The premium comes mostly from family firms with absent founders and when sons are involved.","PeriodicalId":228319,"journal":{"name":"ERN: CEO & Executive Motivation & Incentives (Topic)","volume":"69 6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116549689","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"CEO Education, CEO Turnover, and Firm Performance","authors":"Sanjai Bhagat, B. Bolton, Ajay Subramanian","doi":"10.2139/ssrn.1670219","DOIUrl":"https://doi.org/10.2139/ssrn.1670219","url":null,"abstract":"This paper analyzes the relationship between CEO education, CEO turnover and firm performance. Our primary interest is on the role that CEO education plays in a firm's decision to replace its current CEO, the role that it plays in selecting a new CEO, and on whether CEO education significantly affects performance. We use six main measures of CEO education: whether or not the CEO attended a Top-20 undergraduate school, whether or not the CEO has an MBA, law or masters‟ degree, and whether or not the MBA or law degree is from a Top-20 program. Our study includes more than 14,500 CEO-years and more than 2,600 cases of CEO turnover from 1993-2007. Our results show that CEO education does not play a large role in the decision by a firm to replace its current CEO; poorly performing CEOs are replaced, regardless of their education. Education, however, does play a significant role in the selection of the replacement CEO; there is a significantly positive correlation between the education levels of new CEOs and those of the CEOs they replace. Further, hiring new CEOs with MBA degrees leads to short-term improvements in operating performance. We, however, do not find a significant systematic relationship between CEO education and long-term firm performance. CEO education does not seem to be an appropriate proxy for CEO ability. Our results lead to the puzzling implication that, while CEO education appears to play an important role in the hiring of CEOs, it does not affect the long-term performance of firms.","PeriodicalId":228319,"journal":{"name":"ERN: CEO & Executive Motivation & Incentives (Topic)","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-08-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130292951","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Strategic Flexibility and the Optimality of Pay for Sector Performance","authors":"R. Gopalan, Todd Milbourn, Fenghua Song","doi":"10.1093/RFS/HHP118","DOIUrl":"https://doi.org/10.1093/RFS/HHP118","url":null,"abstract":"While standard contract theory suggests that a Chief Executive Officer (CEO) should be paid relative to a benchmark that removes the effects of sector performance, there is evidence that CEO pay is strongly and positively related to such sector performance. In this article, we offer an explanation. We model a CEO charged with selecting the firm's strategy that determines the firm's exposure to sector performance. To incentivize the CEO to choose optimally, pay contracts will be positively and sometimes asymmetrically related to sector performance. Consistent with our predictions, the empirical analysis indicates that the observed sensitivity of pay to sector performance is almost fully confined to multisegment firms and is greater in firms that offer greater strategic flexibility to alter sector exposure, for more talented CEOs and for CEOs as compared to their subordinate executives. Our evidence is robust to alternate explanations such as CEO entrenchment. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.","PeriodicalId":228319,"journal":{"name":"ERN: CEO & Executive Motivation & Incentives (Topic)","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-09-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122694858","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Dividends, Executive Compensation, and Agency Costs: Empirical Evidence from Germany","authors":"Nalinaksha Bhattacharyya, J. Elston","doi":"10.2139/ssrn.1362024","DOIUrl":"https://doi.org/10.2139/ssrn.1362024","url":null,"abstract":"While researchers have found that dividend payout ratios are negatively related to executive compensation in North America, a relevant question remains as to whether such relationships hold in other institutional environments. Evidence from this study suggests that, as in North America, there is a negative relationship between dividend payout ratios and executive compensations in Germany. This study shows, that the role of dividends in resolving agency issues, is relevant not only in market based systems like that in North America but also in bank based systems like Germany. Agency issues also appear to be partially mitigated by the influence of banks. Bank influence is also found to be positively related to dividend payout ratio and thus consistent with the Free Cash Flow Hypothesis of Jensen (1986) and Easterbrook (1984).","PeriodicalId":228319,"journal":{"name":"ERN: CEO & Executive Motivation & Incentives (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-03-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130180811","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Corporate Governance, Board Responsibilities, and Financial Performance: The National Bank of Australia","authors":"Ameeta Jain, Dianne Thomson","doi":"10.22495/COCV6I2P9","DOIUrl":"https://doi.org/10.22495/COCV6I2P9","url":null,"abstract":"This paper examines board responsibilities and accountability by management and Board of Directors in relation to the National Australia Bank’s (NABs) performance. The NAB, an international financial service provider within the top thirty most profitable banks in the world, is compared with the Australian major banks. The evidence suggests that NABs poor performance was consistent with a lack of accountability, poor corporate governance and board dysfunction associated with fraudulent currency trading and the subsequent AUD360 million foreign currency losses. The NAB’s performance is investigated by utilizing accounting-based measures of profitability and cost efficiency as proxies for performance. Following the foreign currency trading losses in 2004 the NAB under-performed the other major Australian banks in terms of profits, cost to income ratio and growth in assets. In terms of profitability and cost efficiency NAB had the lowest ROE and ROA with a 19.7% fall in net profit and the highest cost to income ratio of 57.4% of any of the five largest banks. This case study provides an Australian example of poor corporate governance and suggests that financial institutions and regulators can learn from the NAB’s experience. Failure to have top-down accountability can have significant impact on over-all performance, profitability and reputation. In particular, it suggests that management and Boards need to review their risk management procedures and regulators need to be more pro-active in their prudential oversight of financial institutions.","PeriodicalId":228319,"journal":{"name":"ERN: CEO & Executive Motivation & Incentives (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-04-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128753800","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}