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Journal articles on the topic 'Compensations and incentives'
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1
Ohnuma, Hiroshi. "Does executive compensation reflect equity risk incentives and corporate tax avoidance? A Japanese perspective." Corporate Ownership and Control 11, no. 2 (2014): 60–71. http://dx.doi.org/10.22495/cocv11i2p5.
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This study examines corporate tax avoidance as a determinant of executive compensation on the basis of equity risk incentives. Previous research shows that equity risk incentives motivate managers to make more risky, but positive net present value—investment decisions. Through correlation analyses, this study demonstrates that the tax risk measures adopted in this study are negatively associated with both the adoption of stock options and tax aggressive measures. Through multivariate analyses, this study demonstrates that executive compensations are significantly associated with our measures of tax risk positions despite the inclusion of several control variables. Moreover, this study finds consistent evidence that executive equity risk incentives are significantly associated with aggressive tax positions, regardless of the estimation method and the strength of the corporate governance function, and across several tax risk measures.
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Xue, Jiao, Heng Fan, and Zhanxun Dong. "Compensations of Top Executives and M&A Behaviors: An Empirical Study of Listed Companies." International Journal of Financial Studies 8, no. 4 (October 23, 2020): 64. http://dx.doi.org/10.3390/ijfs8040064.
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This study empirically examines the relationship between executive compensation and mergers and acquisitions (M&A) behaviors by identifying the influence of short- and long-term incentive on the propensity and scale of M&A. When the short-term incentive is insufficient, M&A behaviors serve as a beneficial compensation mechanism. Thus, lack of executives’ incentive promotes the propensity to engage in M&A and significantly affects the scale of M&A. With regard to long-term incentives, M&A behaviors serve as a beneficial creation mechanism. Shareholding of executives promotes M&A propensity, and does not significantly affect the scale of M&A. This study significantly contributes to research in M&A behaviors by revealing the beneficial distribution mechanisms of M&A behaviors.
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Matović, Ivana Marinović. "Comparative Analysis of Executive Compensation in the Republic of Serbia and EU Countries." Economic Themes 57, no. 2 (June 1, 2019): 181–200. http://dx.doi.org/10.2478/ethemes-2019-0011.
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AbstractExecutive compensations have a strong motivation role in contemporary business organizations. Adequate models of compensation enable attracting and retaining the high-capacity managers. This way, business organization conquers and maintains the competitive position in the context of globalization. It is necessary to align the executive compensation with the business organization’s strategy, which requires careful process of planning, done by the highest levels of management and ownership. The main objective of the paper is to explore and compare the structure and the level of executive compensation in the Republic of Serbia and EU countries. The paper focuses on executive compensation components, primarily long-term and short-term incentives, as well as sallary and benefits. A comparative analysis of executive compensation models was performed to explain the differences in the observed countries.The study found large and disproportionate differences in the executive compensation levels, conditioned mostly by the economic development of the observed economies.
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Park, Soo Yeon, and Kwan Hee Yoo. "CEO Career Concerns And Voluntary Disclosure." Journal of Applied Business Research (JABR) 32, no. 6 (November 2, 2016): 1603. http://dx.doi.org/10.19030/jabr.v32i6.9811.
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This paper investigates the relation between Chief Executive Officers (CEO) career concerns and voluntary disclosures using listed firm (KOSPI) data in Korea. Prior research suggests that explicit incentives in the form of CEO stock-based compensation or CEO’s equity ownership mitigate the agency problems of reluctance to make voluntary disclosure. In addition, implicit incentives arising from CEO career concerns are as important as explicit incentives for mitigating agency problems.The labor market assesses CEOs ability and CEO reputation in the market is a valuable asset that is associated with many long-term benefits, such as better future compensation, reappointment in the position, and greater managerial autonomy. CEOs are concerned about such an assessment and these concerns are referred to as career concerns. However, the market has incomplete information about CEOs’ ability especially when the CEOs have short tenures as a CEO position. Hence, CEOs with short tenures have more strong incentives to signal their ability to the labor market so that they can build proper reputation.Implicit incentives arising from CEO career concerns are measured by CEO tenure. I assume that short-tenured CEOs are more career-concerned than long-tenured CEOs. I find that CEOs with short tenures tend to more likely disclose management forecasts. I interpret this result that more career-concerned CEOs have strong incentives to signal their ability to the labor market in order to build their reputations which affect their future payoffs such as compensations and reappointment. In addition, management forecasts, means of voluntary disclosure, are used as effective mechanism. I also find that CEOs with short tenures tend to disclose more accurate management forecasts. This result implies that CEOs with more career concerns have more pressure to provide accurate forecasts because of their reliability in the labor market. Based on these empirical results, I infer that CEOs’ implicit incentives affect their voluntary disclosure decision.This study will contribute to academics and disclosure-related practitioners by documenting about CEOs’ career concerns and their voluntary disclosure decisions.
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Bolfek, Berislav, Perina Torbarina, and Lucija Surać. "Struktura i faktori koji utječu na utvrđivanje kompenzacija izvršnih menadžera." Oeconomica Jadertina 6, no. 2 (November 12, 2017): 52. http://dx.doi.org/10.15291/oec.1343.
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Executive managers represent a small precentage of one companies workers but they are the most important group of employees. The ideal compensation management policy ensures that the best talent will remain with the organization while attracting new talent and minimizing turnover. Executive compensation normally combines base salary, short-term and long-term incentives, benefits and bonuses. The purpose of this paper is to explore and analyse data about stucture and factors that affect executive compensation determination of top five global brands. The collected data on the hight of executive compensations refer to the period from 2010 to 2015. Selected executives are leaders of the companies that are ranked as the top five global brands on Interbrands 2015 list. CEO pay in the U.S. has grown exponentially since the 1970s. The CEO-to-worker pay ratio trend indicates that the ratio keeps rising over the years, with some CEOs making more than 400 times the median salary of their employees. Some analyst recommend that every company's compensation system should include implementing certain regulatory actions, using different metrics for determining CEO compensation, making board member-CEO relationships transparent to all company stakeholders.
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Croci, Ettore, Eric Nowak, and Olaf Ehrhardt. "The corporate governance endgame – minority squeeze-out regulation and post-deal litigation in Germany." Managerial Finance 43, no. 1 (January 9, 2017): 95–123. http://dx.doi.org/10.1108/mf-01-2016-0032.
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Purpose The purpose of this paper is to examine minority squeeze-outs and their regulation in Germany, a country where majority shareholders have extensively used this tool since its introduction in 2002. Using unique hand-collected data, the authors carry out the first detailed analysis of the German squeeze-out offers from the announcement to the outcome of post-deal litigation, examining also the determinants of the decision to squeeze-out minority investors. Design/methodology/approach Using unique data on court rulings and compensations, the authors analyze a sample of 324 squeeze-outs of publicly listed companies from 2002 to 2011 to carry out the first detailed analysis of the squeeze-out procedure and the post-deal litigation. The authors employ the event study methodology to assess the stock market reaction around the announcement of the squeeze-out. Findings Large firms with foreign large shareholders are the most likely to be delisted. Positive stock price performance increases the likelihood of a squeeze-out, but operating performance has the opposite effect. Stock prices react positively to squeeze-out announcements, in particular when the squeeze-out does not follow a previous takeover offer. Post-deal litigation is widespread: nearly all squeeze-outs are legally challenged by minority shareholders. Additional cash compensation is larger in appraisal procedures, but actions of avoidance are completed in less time. Overall, the evidence suggests that starting post-deal litigation by challenging the cash compensation offered in a squeeze-out delivers high returns for minority investors. Research limitations/implications The lack of data concerning the identity of minority shareholders in firms undergoing a squeeze-out does not allow a proper investigation of the incentives of the different types of investors. Practical implications The paper provides evidence about the incentives of the different players in a squeeze-out offer. The findings of the paper could be helpful in assessing the impact of the squeeze-out rule. The results also contribute to the understanding of minority investors’ incentives to start post-deal litigation. Originality/value This paper provides new evidence about post-deal litigation, in particular how investors use the procedures that the system provides them to protect themselves against controlling shareholders. The paper examines all the phases of the squeeze-out procedure and challenges.
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McConaughy, Daniel L. "Family CEOs vs. Nonfamily CEOs in the Family-Controlled Firm: An Examination of the Level and Sensitivity of Pay to Performance." Family Business Review 13, no. 2 (June 2000): 121–31. http://dx.doi.org/10.1111/j.1741-6248.2000.00121.x.
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This study examines CEO compensation in 82 founding-family-controlled firms; 47 CEOs are members of the founding family and 35 are not. It tests the family incentive alignment hypothesis, which predicts that family CEOs have superior incentives for maximizing firm value and, therefore, need fewer compensation-based incentives. Univariate and multivariate analyses show that family CEOs' compensation levels are lower and that they receive less incentive-based pay—confirming the family incentive alignment hypothesis and suggesting the possible need for family firms to increase CEO compensation when they replace a founding family CEO with a nonfamily-member CEO.
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Chee, Seungmin, Wooseok Choi, and Jae Eun Shin. "The Non-Linear Relationship Between CEO Compensation Incentives And Corporate Tax Avoidance." Journal of Applied Business Research (JABR) 33, no. 3 (April 28, 2017): 439–50. http://dx.doi.org/10.19030/jabr.v33i3.9935.
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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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Chance, Don M., and Tung-Hsiao Yang. "The Tradeoff Between Compensation and Incentives in Executive Stock Options." Quarterly Journal of Finance 01, no. 04 (December 2011): 733–66. http://dx.doi.org/10.1142/s2010139211000225.
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Because stock options have a dual role as both compensation and incentives, a portion of option value represents compensation and a portion represents incentives. We develop a model that measures the tradeoff between the compensation and incentive values of options. Empirical estimates over a 14-year period show that the median option contains $1.08 of incentives for every $1.00 of compensation and that option compensation is around 30% of total compensation. We also find that firms that use options more as a compensation device use fewer options and reduce other cash payments suggesting a resourceful and not abusive use of options.
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Gittoes, Elise, Elias Mpofu, and Lynda R. Matthews. "Rehabilitation Counsellor Preferences for Rural Work Settings: Results and Implications of an Australian Study." Australian Journal of Rehabilitation Counselling 17, no. 1 (June 1, 2011): 1–14. http://dx.doi.org/10.1375/jrc.17.1.1.
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AbstractThis study sought to identify influences on rehabilitation counsellors' preference to work in rural areas, including their recruitment to, and retention in, rural work settings. Participants were 38 practicing rehabilitation counsellors (31% males) recruited through the Australian Society of Rehabilitation Counsellors and the Rehabilitation Counselling Association of Australasia. The mean age of participants was 38.67 years (SD= 12.9 years, age range, 25 to 65 years). Nineteen (50%) were working in rural areas at the time of the survey. A specifically designed survey, the Work Setting Preference Inventory (WSPI), which incorporated both quantitative and qualitative response options, was used to collect data. Analysis involved open coding of data into themes that emerged from the participants' responses. Descriptive statistical analysis was applied to quantify the prevalence or salience of particular themes. Results suggest that participants perceived preference to work in rural area to be influenced by the unique lifestyle of rural communities and family friendly employer policies. They perceived the availability of employment and training opportunities and supplemental financial compensations as incentives to attract rehabilitation counsellors to work in rural areas. Programs to recruit rehabilitation counsellors to rural areas should address employee lifestyle preferences in the context their overall career development.
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Basuroy, Suman, Kimberly C. Gleason, and Yezen H. Kannan. "CEO compensation, customer satisfaction, and firm value." Review of Accounting and Finance 13, no. 4 (November 4, 2014): 326–52. http://dx.doi.org/10.1108/raf-11-2012-0120.
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Purpose – The purpose of this article is to examine whether the design of chief executive officer (CEO) compensation generates incentives to engage in managerial behavior that enhances customer satisfaction and whether these incentives, in turn, lead to higher firm value. Design/methodology/approach – A unique dataset combining customer satisfaction and executive compensation data was used, and the relationship between option sensitivity, customer satisfaction and performance was modeled using simultaneous equations modeling with industry and year fixed effects. Findings – Findings suggest that CEO compensation plays an important role in explaining the variation in customer satisfaction and firm value. Specifically, CEO short-term compensation (salary or bonus) has no affect on customer satisfaction or firm value; the sensitivity of CEO wealth from long-term incentive compensation to stock price changes is positively related and also exhibits an inverted U-shaped relationship with customer satisfaction; the sensitivity of CEO wealth from long-term incentive compensation to stock price changes interacts negatively with CEO longevity and industry concentration but positively with advertising expenses in affecting customer satisfaction; the sensitivity of CEO wealth from long-term incentive compensation to both stock price changes and customer satisfaction positively affect firm value; and the sensitivity of CEO wealth from long-term incentive compensation to stock price changes interacts positively with customer satisfaction to affect firm value. Research limitations/implications – This study suffers from several limitations. First, the sample is limited to firms with ACSI scores available. Second, this study is limited to only publicly traded firms, which limits our ability to generalize regarding customer satisfaction, option sensitivity and firm value. Practical implications – This study has several important implications for researchers and managers. The first is that the corporate board appears to view investment in customer satisfaction as similar to an investment in other intangible assets or technology, in that they reward managers with a nonlinear payoff profile. To encourage managers to invest discretionary funds wisely, incentive compensation is important. Second, compensation committees of corporate boards should not allow the option sensitivity to reach extreme levels because, at some point, managers’ incentives appear to shift more toward short-term earnings objectives and away from investment in intangibles, which have a longer-term payoff. Third, if boards are concerned about customer satisfaction and market value, when designing compensation packages, they should shift their focus from the structure of pay to the sensitivity of pay to performance. The exception to this is that for CEOs with very long tenures (or for those close to retirement), high levels of option sensitivity may distort incentives away from a focus on customer satisfaction. Finally, our results indicate that strategies that enhance customer satisfaction provide an incremental benefit in terms of firm value, beyond incentive compensation strategies. Social implications – The results indicate that a “stakeholder focus” which includes customers is value adding for shareholders as well. The results also imply that perhaps using a “balanced scorecard” approach to assessing performance in terms of customer satisfaction outcomes, or at least acknowledging the drives of customer satisfaction explicitly, could be an alternative to using highly sensitive incentive-based compensation when such compensation schemes are less desirable. Originality/value – Prior research has found that the structure of fixed versus incentive-based compensation impacts customer satisfaction. However, this is one of the first papers to investigate the relationship between the sensitivity of CEO compensation and customer satisfaction. Findings have important implications for boards who seek to structure CEO pay so that CEOs have incentives to enact policies that benefit customers and, in turn, firm performance.
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Lin, Yu-Chun. "The consequences of audit committee quality." Managerial Auditing Journal 33, no. 2 (February 5, 2018): 192–216. http://dx.doi.org/10.1108/maj-03-2016-1350.
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Purpose This study aims to examine the consequences when audit committees have different economic incentives (i.e. incentive-based compensation) to switch auditors. Design/methodology/approach The author focuses on companies experiencing an auditor switching event (client-initiated dismissals) and uses Heckman’s (1997) two-stage estimation procedure to control endogenous bias. Audit committee quality is measured by the level of incentive-based compensation. Accrual quality and abnormal audit fees are examined over the periods of auditor switches. Findings Using 1,087 US companies between 2006 and 2014, the author found that audit committees’ incentive-based compensation is negatively (positively) associated with accruals quality (abnormal audit fees) only when companies switch from Big 4 to non-Big 4 auditors or switch within non-Big 4 auditors. For companies that switch from non-Big 4 to Big 4 auditors, she found no evidence. Research limitations/implications This study provides a detailed discussion of the consequences of audit committee quality. The findings also contribute to the literature by concluding that economic incentives are associated with ineffective oversight, particularly after auditor switches. Practical implications Sarbanes–Oxley Act and its associated regulations significantly expanded the oversight role of audit committees. However, regulators bypassed restrictions on audit committee compensation. Accordingly, the author suggests that regulators focus on the issue of economic incentives to improve audit committee quality. Originality/value Minimal research has been conducted on the role of audit committees when companies switch to a new external auditor. The author shows that when companies switch auditors, incentive-based compensation significantly affects the monitoring quality of audit committees.
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Kannan, Yezen H., Terrance R. Skantz, and Julia L. Higgs. "The Impact of CEO and CFO Equity Incentives on Audit Scope and Perceived Risks as Revealed Through Audit Fees." AUDITING: A Journal of Practice & Theory 33, no. 2 (April 1, 2014): 111–39. http://dx.doi.org/10.2308/ajpt-50666.
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SUMMARY: In 2013, the Public Company Accounting Oversight Board (PCAOB) proposed an amendment to Auditing Standard No. 12 (PCAOB 2010) that would require auditors to consider executive compensation in audit planning because of potential fraud risk associated with equity incentives. We use the association between audit fees and CEO and CFO equity incentives to infer whether auditors increase audit scope and perceive greater risk as equity incentives increase. Equity incentives are defined as the sensitivity of the value of executives' equity portfolios to changes in share price (delta incentive) and to changes in return volatility (vega incentive). We find a positive association between audit fees and vega, but not delta. However, when we interact vega with proxies for residual auditor business risk, we find that the fee premiums for risk decrease as vega increases. Our results suggest that auditors do consider executive compensation in audit planning.
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Springer, Matthew G., and Lori L. Taylor. "Compensation and Composition: Does Strategic Compensation Affect Workforce Composition?" Journal of Education Human Resources 39, no. 2 (April 2021): 101–64. http://dx.doi.org/10.3138/jehr-2020-0029.
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Theory suggests that strategic compensation can not only serve as a powerful motivational incentive to increase worker performance, but also improve the composition of the workforce through the attraction and retention of high performers and discouragement of lesser performers from entering or staying in the profession. This study tests the compositional hypothesis of employment relationships by studying teacher compensation and incentives. In Tennessee, some school districts developed incentive pay plans that provided teachers with bonus awards, while other districts incorporated incentive pay into their salary schedules. This article uses panel data on individual teachers and a difference-in-differences instrumental-variables approach to examine the impact of those incentive programs on teacher retention. We also draw on detailed strategic compensation plan information, including award payout information, to examine the relationship between type of strategic compensation system and teacher turnover. Our analysis suggests that the strategic compensation programs in Tennessee had a significant impact on teacher turnover in participating schools. Implications for educational research, practice, and policy are discussed.
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Cho, Jeh-Hyun, Iny Hwang, Jeong-Hoon Hyun, and Jae Yong Shin. "Compensation Consultant Fees and CEO Pay." Journal of Management Accounting Research 32, no. 1 (March 1, 2020): 51–78. http://dx.doi.org/10.2308/jmar-52434.
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ABSTRACT While compensation consultants are known to play an important role in the design of executive compensation contracts, evidence on the effect of consultant incentives on CEO pay is mixed. Using compensation consultant observations with mandatory fee disclosures, which a prior study identifies as an optimal pay setter, we examine whether CEO pay is associated with consultants' incentives to retain clients, measured by fees for executive compensation services. In contrast to previous studies that find no support for repeat business incentives, we find evidence that CEO pay is higher when consultants receive abnormally high fees, demonstrating a strong incentive to retain the client, and that this positive association occurs only in weakly governed firms. This finding highlights the importance of consultant incentives and corporate governance in executive compensation settings. JEL Classifications: M12; G34; G38. Data Availability: Data used in this study are publicly available.
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Chzhan, Khaichzhou. "The practice of employee motivation via salary in the private economic sector of the People’s Republic of China." Тренды и управление, no. 1 (January 2020): 32–37. http://dx.doi.org/10.7256/2454-0730.2020.1.33143.
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This article is dedicated to motivation of employees of the private economic sector of China. The author examines the practices of employee stimulation via salary, as well as practice of stimulating productivity through bonus program. It is noted that the system of employee motivation via salary in the private economic sector of PRC does not significantly differ from the practices implemented in the public sector or other market economies. Chinese private companies almost entirely integrated the market tools for stimulation of workforce productivity, patterned after the examples of capitalist countries. The majority of private sector enterprises are characterized with fringe benefits to basic salary, when the size of remuneration directly depends on hitting the individual and collective planned targets. The salary is being regularly indexed depending on conjuncture of the job market, productivity of the company and employees. In addition to the main salary, the base of the salary consists of payment for the volume of completed work, bonuses, various incentives and compensations. Raises for continued employment play the smallest role in size of the salary. A substantial part of the fringe benefits is actually taken by the Chinese companies out of the salary budget for the purpose of minimizing the tax burden for the company.
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Beavers, Randy. "CEO long-term incentive pay in mergers and acquisitions." Corporate Ownership and Control 15, no. 1 (2017): 265–76. http://dx.doi.org/10.22495/cocv15i1c1p10.
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This paper analyzes the CEO incentives of inside debt in the form of deferred equity compensation in the context of M&A decisions. This study runs statistical regressions on the likelihood of a merger, whether the deal is diversifying, how much stock is used to pay for the deal, and the relative deal size controlling for CEO long-term incentive pay as the main variable of interest and including controls for firm characteristics, merger characteristics, industry, and year. This paper sheds light on LTIP effects before compensation changes occur after an M&A event. This study uses archival data from 1996 to 2005 for the United States with data collected from CRSP, Compustat, and SDC Platinum. This is one of the first studies to focus on the United States. When firms with higher levels of CEO long-term incentive pay decide to engage in an acquisition, those acquisitions are non-diversifying, relatively smaller deals, and are paid using a greater portion of stock. The evidence indicates that long-term incentive pay incentivizes CEOs to make less risky decisions for the benefit of debt holders and at the expense of shareholders. In addition, deals made are not necessarily diversifying as once believed
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Johnson, Nicole Bastian. "Residual Income Compensation Plans and Deferred Taxes." Journal of Management Accounting Research 22, no. 1 (January 1, 2010): 103–14. http://dx.doi.org/10.2308/jmar.2010.22.1.103.
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ABSTRACT: Residual income is a popular performance metric that is often calculated from financial accounting numbers. Practitioners argue that financial accounting earnings and book value suffer from various biases and should be adjusted prior to the residual income calculation so that the resulting residual income metric will have better incentive properties, but they often disagree about what the adjustments should be. Using the criterion that a residual income performance metric should align owner and managerial investment incentives, I develop a simple investment model to show how financial accounting choices and adjustments must be chosen jointly to achieve incentive alignment. In particular, I examine conflicting recommendations from the practitioner literature about the proper adjustment for deferred taxes and show that more than one adjustment method can achieve incentive alignment if paired with the correct depreciation schedule. Further, I show that relationships among accounting variables introduce constraints that make some policies or adjustments more difficult to work with. The paper concludes with a brief discussion about how the use of sub-optimal adjustments can negatively influence the manager’s investment incentives.
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Ederhof, Merle. "Incentive Compensation and Promotion-Based Incentives of Mid-Level Managers: Evidence from a Multinational Corporation." Accounting Review 86, no. 1 (January 1, 2011): 131–53. http://dx.doi.org/10.2308/accr.00000007.
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ABSTRACT: This study re-examines the hypothesis that explicit, compensation-based incentives of mid-level managers are adjusted to the level of implicit incentives provided by the possibility of moving to higher-level positions. Using compensation data from a large multinational corporation, I find that, after controlling for the position’s scope and level of accountability, bonus-based incentives are stronger for managers who (1) have fewer organizational levels left to climb, (2) face weaker implicit incentives from getting promoted to the next level, and (3) face weaker implicit incentives from getting promoted to the top of the organization. The findings are consistent with the notion that implicit incentives are taken into consideration in the design of explicit incentive contracts. In particular, the results support the prediction that explicit incentives are optimally stronger in situations with weaker implicit incentives.
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Yin, Xianan, Hua Ming, Jing Cui, and Xinzhong Bao. "Could Executive Compensation Incentive Enhance the Efficiency of Enterprise Resource Allocation? An Empirical Study from China." Discrete Dynamics in Nature and Society 2021 (August 16, 2021): 1–11. http://dx.doi.org/10.1155/2021/7073878.
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Corporate executives have the decision-making power of resource allocation, and efficient resource allocation is an important measure of high-quality development of enterprises. It is a focal issue whether the compensation incentive can promote the executives to make better use of the enterprise resource allocation. We investigate this question using the data of the Chinese listed companies in 2015–2019 based on Data Envelopment Analysis (DEA) and fixed effect model. The results show the following: (1) both monetary compensation incentive and equity incentive can significantly improve the efficiency of resource allocation, and the former is more significant; (2) there is an inverted U-shaped relationship between perquisite consumption incentive and resource allocation efficiency; (3) the above conclusion is still true in state-owned enterprises; (4) in private enterprises, the effect of equity incentive is more effective, but the effect of perquisite consumption incentive is less significant. The results highlight the relationship between compensation incentive and enterprise resource allocation. Our study is expected to guide the executives to formulate reasonable compensation incentives and improve the efficiency of resource allocation.
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Bech-Nielsen, Anne Britt, and Anders Rom. "Incentive compensation in Fritz Hansen: The shortfall of incentives theory and the insights from contingency theory." Corporate Ownership and Control 4, no. 2 (2007): 271–80. http://dx.doi.org/10.22495/cocv4i2c2p3.
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This paper studies incentive compensation at Fritz Hansen, a Danish manufacturer of exclusive design furniture. A vast amount of literature exists within incentives theory. However, regardless of the establishedness of incentives theory it is not able to fully explain the case at Fritz Hansen. Several short-comings of incentives theory are found: managers whose compensation is not tied to BSC measures behave in accordance with these measures; no bonus bank is included in the incentives system to accompany EVA measures on which managers are rewarded but there seem to be no resulting focus on short-term results; managers self-select the bonus measures but they select measures that they cannot directly influence. Regardless of these breaches, the situation at Fritz Hansen seems to be in equilibrium with managers behaving in the interest of the owners and the owner representatives being satisfied with the incentives system. In order to better understand how and why the design of incentive compensation at Fritz Hansen seems to function, contingency theory is drawn upon. While contingency theory provides a usable framework for the study important variables not previously mentioned in contingency theory is missing before the case of Fritz Hansen can be explained. Using the case study method the variables change urgency, the presence of an ultimate lagging goal, the legitimising effect, the system of measurement, non-financial measurement and lastly the controllability principle are extracted from the case. Together, these can explain why EVA is still included as a compensation base and why managers are motivated by BSC measures although they are not part of the compensation base
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Englmaier, Florian, and Stephen Leider. "Contractual and Organizational Structure with Reciprocal Agents." American Economic Journal: Microeconomics 4, no. 2 (May 1, 2012): 146–83. http://dx.doi.org/10.1257/mic.4.2.146.
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We solve for the optimal contract when agents are reciprocal, demonstrating that generous compensation can substitute for performance-based pay. Our results suggest several factors that make firms more likely to use reciprocal incentives. Reciprocity is most powerful when output is a poor signal of effort and when the agent is highly reciprocal and/or productive. Similarly, reciprocal incentives are attractive when firm managers have strong incentive pay and discretion over employee compensation. While reciprocal incentives can be optimal even when identical firms compete, a reciprocity contract is most likely when one firm has a match-specific productivity advantage with the agent. (JEL D23, D86, J33, M12, M52)
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Sprinkle, Geoffrey B. "The Effect of Incentive Contracts on Learning and Performance." Accounting Review 75, no. 3 (July 1, 2000): 299–326. http://dx.doi.org/10.2308/accr.2000.75.3.299.
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This paper reports the results of an experiment that examines how incentive-based compensation contracts compare to flat-wage compensation contracts in motivating individual learning and performance. I use a multiperiod cognitive task where the accounting system generates information (feedback) that has both a contracting role and a belief-revision role. The results suggest that incentives enhance performance and the rate of improvement in performance by increasing both: (1) the amount of time participants devoted to the task, and (2) participants' analysis and use of information. Further, I find evidence that incentives improve performance only after considerable feedback and experience, which may help explain why many prior one-shot decision-making experiments show no incentive effects. Collectively, the results suggest that incentives induce individuals to work longer and smarter, thereby increasing the likelihood that they will develop and use the innovative strategies frequently required to perform well in complex judgment tasks and learning situations.
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Тутова, Анастасія Сергіївна. "ІНСТРУМЕНТИ ЕКОНОМІЧНОГО СТИМУЛЮВАННЯ ТОП-МЕНЕДЖЕРІВ." Bulletin of the Kyiv National University of Technologies and Design. Series: Economic sciences 137, no. 4 (December 5, 2019): 104–11. http://dx.doi.org/10.30857/2413-0117.2019.4.10.
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The article discusses the basic economic incentive tools for top managers along with offering their classification and revealing the nature of incentives for senior-level management. In modern realia, economic incentives apparently seem to be effective methods to motivate senior executives. It is argued that top managers are the most important elements in the company's human capital, their remuneration and creation of favorable environment is a specific type of investment within the overall structure of the company’s compensation and incentive plan. While designing an effective compensation strategy for personnel, it is critical to acknowledge that the effects from providing incentives for top managers are of higher value to the company’s performance than rewarding other employees. The performance appraisal framework to assess senior-level managers should include the criteria relating to the company’s overall performance as well as the indicators of their individual contributions, with a focus to attaining the company’s strategic goals. Given the above, it is suggested to classify economic incentive tools into monetary and non-monetary. The monetary incentives are additional financial bonuses that enhance the overall motivation policies for the company’s top managers. Non-monetary instruments contribute to boosting personal motivation in the work quality as well as the company economic security. Business owners, in turn, should make every effort to employ a range of economic incentives, in different combinations, scale and patterns to build an effective management system and unlock the capacity of senior executives.
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Da Silva, Luciana Leandro, and Alvaro Moreira Hypolito. "Avaliação, Estado e regulação: Repercussões da Prova Brasil na (con)formação dos profissionais e no gerencialismo nas escolas." education policy analysis archives 26 (October 15, 2018): 128. http://dx.doi.org/10.14507/epaa.26.3710.
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This article presents some reflections on the changes in the role of the state in the process of defining rules, norms, and configuration of educational systems, based on the results of a wider research on the repercussions of Prova Brasil in the municipalities of Campina Grande (PB) and Pelotas (RS). It focuses on the analysis of changes in the relation between state and market, as well as in the model of state regulation that reinforces the implantation of managerial mechanisms in the educational systems and in the schools. Through documental, bibliographic, and empirical data, the findings demonstrate that, despite the peculiarity with which municipalities and schools react to this national policy, there is great concern about the results of Prova Brasil and IDEB, which convert into public-private partnerships the implementation of some incentives such as payment by performance and other compensations for best schools. In Campina Grande, training has been a strategic element in pushing professionals toward a market logic; in Pelotas, professionals try to preserve their autonomy and practice a collective work. Therefore, on the one hand, the post-bureaucratic and quasi-market model of regulation that permeates the assessment system weakens the autonomy, professionalization, and democratic management of schools. On the other, the teachers who work in the schools are subjects capable of resisting and reinventing their practices.
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LATURI, JANI, JUSSI LINTUNEN, and JUSSI UUSIVUORI. "MODELING THE ECONOMICS OF THE REFERENCE LEVELS FOR FOREST MANAGEMENT EMISSIONS IN THE EU." Climate Change Economics 07, no. 03 (August 2016): 1650006. http://dx.doi.org/10.1142/s2010007816500068.
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In the Durban climate change conference of UNFCCC in 2011 new accounting rules were agreed for forest sector in Annex I countries to provide incentives for forest management and emission mitigation. There was also pressure to modify accounting rules to avoid giving credits for sequestration which would occur naturally. New accounting rules are based on reference levels against which greenhouse gas emissions and sinks resulting from forest management are compared during the second commitment period (2013–2020) of the Kyoto Protocol. In this study we investigate the timber market impacts and the effectiveness of the reference level policy in promoting forest management actions in the EU countries. We also study how setting of caps for policy-based gains affects the effectiveness of the policy. We found that the policy enhances carbon sequestration, if it is implemented in such a way that it affects harvests. The market impacts and the effects on forest sinks can be substantial in countries where non-LULUCF sector emissions are high relative to the potential of forest resources to act as sinks. In smaller countries with relatively large forest resources, the effectiveness of the policy is dampened by upper limits imposed on the emission compensations. The results of our study can be used to improve the effectiveness of policies in climate change negotiations.
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Kelly, Khim. "The Effects of Incentives on Information Exchange and Decision Quality in Groups." Behavioral Research in Accounting 22, no. 1 (January 1, 2010): 43–65. http://dx.doi.org/10.2308/bria.2010.22.1.43.
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ABSTRACT: This study uses an experiment to examine the effects of different compensation contracts (flat wage, group incentive, and noncompetitive individual incentive) on decision quality when information is distributed among different individuals. The results indicate that information exchange and decision quality are better under the group incentive than the individual incentive, even when both incentives provide an economic motivation for information exchange. Information exchange and decision quality are also better under the flat wage than the individual incentive, despite the stronger economic motivation for information exchange under the individual incentive. Analyses indicate that the effect of compensation contracts on decision quality is partially mediated through information exchange between group members. The results are consistent with higher group membership saliency under the group incentive and the flat wage than the individual incentive, and group membership saliency promoting information exchange between group members. The results also suggest that in a group decision-making context, differences in decision quality across compensation contracts may be better explained by psychological factors rather than economic factors.
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Callen, Jeffrey L., Mindy Morel, and Christina Fader. "An Empirical Analysis of the Incentive-Action-Performance Chain of the Principal-Agent Model." Journal of Management Accounting Research 20, s1 (January 1, 2008): 79–105. http://dx.doi.org/10.2308/jmar.2008.20.s-1.79.
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ABSTRACT: This study empirically investigates the incentive-action-performance chain on cross-sectional plant data in the context of a just-in-time (JIT- plant manufacturing environment. Incentives in this study are of the “soft” goal-oriented variety rather than direct compensation. The empirical analysis is implemented using ordinary least squares and Heckman two-stage regressions to account for the potential endogeneity of the JIT adoption decision. We find that plant performance outcomes are associated with actions, namely, the breadth and intensities of plant JIT practices adopted by plant management, but are not associated with performance incentives. However, we find that the JIT adoption decision is associated with incentives. We further find that it is the essential inventory incentive aspects of JIT, such as increasing inventory turns and reducing scrap/waste, that motivate JIT adoption rather than other, arguably less central incentive aspects of JIT, such as product quality. Overall, our results are consistent with the predictions of the implicit “career” incentives Principal-Agent model but not with predictions of the standard explicit incentives Principal-Agent model.
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Sun, Lan, and Martin Hovey. "The endogeneity of executive compensation and its impact on management discretionary behavior over financial reporting." Corporate Ownership and Control 11, no. 4 (2013): 818–37. http://dx.doi.org/10.22495/cocv11i1c9art6.
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Extant literature has emerged testing the relationship between executive compensation and earnings management and many these studies have documented that compensation contracts create strong incentives for management discretionary behavior over financial reporting. Previous studies also pointed out that executive compensation could be simultaneously co-determined with earnings management, suggesting a potential endogeneity problem may exist between discretionary accruals and compensation structure. Using a sample of all Australian Securities Exchange (ASX) listed companies comprising 3,326 firm-year observations encompassing the periods from 2000 to 2006, this study examines the endogeneity of executive total compensation and its various components. Applying a 2SLS model the results show a significantly negative association between expected fixed compensation (particularly expected salary) and upwards earnings management and a significantly positive association between expected at-risk compensation (particularly expected bonuses) and upwards earnings management. These findings suggest endogeneity exists in that fixed compensation and salaries provide disincentives for managers to practice aggressive earnings management whereas at-risk compensation and bonuses induce managers to employ income-increasing discretionary accruals to inflate reported earnings. This study found that executive compensation plays a role in determining earnings management activities. Executives may distort financial reporting to maximize their personal wealth if their incentives are not fully aligned with those of shareholders. Compensation committees, therefore, may gain some insight in designing compensation structures that balance the incentive to improve a firm’s performance with the incentive to earnings manipulation.
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Campbell, Cynthia J., Rosita P. Chang, Jack C. DeJong, Robert Doktor, Lars Oxelheim, and Trond Randøy. "The Impact of CEO Long-term Equity-based Compensation Incentives on Economic Growth in Collectivist versus Individualist Countries." Asian Economic Papers 15, no. 2 (June 2016): 109–33. http://dx.doi.org/10.1162/asep_a_00432.
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This study examines the impact of the prevalence of long-term equity-based chief executive officer (CEO) compensation incentives on GDP growth, and we address the moderating role of individualist versus collectivist cultures on this relationship. We argue that long-term incentives given to CEOs in some firms may convey to other CEOs that they too may be able to receive such incentives and rewards if they emulate the incentivized and rewarded CEOs. In a longitudinal study across 22 nations over a 5-year period, we find that the higher proportion of CEOs in a country are awarded long-term equity-based incentive compensation, the greater future real GDP growth, particularly in collectivist countries.
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Bonner, Sarah E., Reid Hastie, Geoffrey B. Sprinkle, and S. Mark Young. "A Review of the Effects of Financial Incentives on Performance in Laboratory Tasks: Implications for Management Accounting." Journal of Management Accounting Research 12, no. 1 (January 1, 2000): 19–64. http://dx.doi.org/10.2308/jmar.2000.12.1.19.
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Management accounting information plays an important role in motivating individuals to improve performance (cf., Atkinson, Banker, Kaplan, and Young 1997). This role tends to be operationalized by linking compensation to performance, typically through the provision of financial incentives. Theoretically, financial incentives motivate people to exert additional effort, which in turn should improve task performance. However, a large body of empirical evidence indicates that financial incentives frequently do not lead to increased performance (e.g., Young and Lewis 1995; Jenkins et al. 1998). Consequently, it is important to examine variables that may interact with financial incentives in affecting task performance. This paper presents an extensive review of laboratory studies on financial incentives and examines the relations between type of task and type of incentive scheme, respectively, and task performance. We posit that performance in tasks of varying types (which we view as a surrogate for the gap between task complexity and skill) is differentially sensitive to the increases in effort induced by financial incentives and that not all incentive schemes elicit the same level of effort. Our review reveals that incentives improve performance in only about one half of the experiments. Further, as tasks become more cognitively complex, and thus as the average subject's skill level decreases, it is less likely that incentives improve performance. Finally, quota schemes have the highest likelihood of evincing positive incentive effects, followed by piece-rate schemes, tournament schemes, and fixed-rate schemes. Overall, our findings suggest that the type of task being performed and the type of incentive scheme being employed affect the efficacy of financial incentives and therefore may influence the design of management accounting and control systems.
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Lee, Mijoo, and In Tae Hwang. "The Effect of the Compensation System on Earnings Management and Sustainability: Evidence from Korea Banks." Sustainability 11, no. 11 (June 5, 2019): 3165. http://dx.doi.org/10.3390/su11113165.
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Since the global financial crisis, management incentive compensation, which is sensitive to financial firms’ short-term performance, has been noted to threaten financial systems’ sustainability by incentivizing managers to pursue excessive risks. Subsequently, international standards have been established regarding compensation for financial institutions’ senior executives and employees. However, this compensation may impact not only banks’ risk-taking behaviors, but also their earnings management, as the latter affects financial performance while compensation is decided as a reflection of such performance. Therefore, this study analyses executive compensation’s impact on banks’ earnings management using compensation data on South Korean banks. The analysis revealed higher earnings management using a loan loss provision with more variable compensation. On the one hand, if the proportion of equity-linked compensation to incentive compensation increased, then earnings management increased. On the other hand, more deferred compensation led to increased earnings smoothing. This study evaluates regulatory impacts across multiple dimensions by analyzing the effects of incentive compensation standards—intended to increase financial systems’ sustainability—on individual financial institutions and further contributes to studies on managerial decision making.
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Mulia, Rahmi Putri, Herlina Helmy, and Mia Angelina Setiawan. "Equity Risk Incentives dan Corporate Tax Aggresiveness." Wahana Riset Akuntansi 7, no. 1 (June 25, 2019): 1437. http://dx.doi.org/10.24036/wra.v7i1.104567.
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This study aims to examine the equity risk incentives relationship with corporate tax aggressiveness. This study uses four proxies to measure corporate tax aggressiveness variables, namely Cash Effectives Tax Rate (CETR), Tax Shelter, Unrecognized Tax Benefits (UTB), and Discretionary Book Tax Differences (DTAX). The equity risk incentives variable is measured using the annual natural total log of compensation of the key management. The study population was manufacturing companies listed on the Indonesia Stock Exchange from 2013 to 2017. The study samples were determined by purposive sampling method so that samples for each CETR, Shelter, UTB and DTAX were obtained were 235, 180, 210 and 205 companies. Based on panel data regression analysis, the results show that 1) Equity Risk Incentive is negatively related to Cash Effectives Tax Rate but not significant, 2) Equity Risk Incentive is positively related to Tax Shelter but not significant, 3) Equity Risk Incentive is negatively related to Unrecognized Tax Benefits not significant, and 4) Equity Risk Incentive is positively related to the Discretionary Book Tax Differences but not significant. The conclusion of this study is that equity risk incentives are not positively related significantly with corporate tax aggressiveness so the hypothesis is rejected.Keywords: Equity Risk Incentives; Tax Aggressiveness
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Laux, Christian, and Volker Laux. "Board Committees, CEO Compensation, and Earnings Management." Accounting Review 84, no. 3 (May 1, 2009): 869–91. http://dx.doi.org/10.2308/accr.2009.84.3.869.
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ABSTRACT:We analyze the board of directors' equilibrium strategies for setting CEO incentive pay and overseeing financial reporting and their effects on the level of earnings management. We show that an increase in CEO equity incentives does not necessarily increase earnings management because directors adjust their oversight effort in response to a change in CEO incentives. If the board's responsibilities for setting CEO pay and monitoring are separated through the formation of committees, then the compensation committee will increase the use of stock-based CEO pay, as the increased cost of oversight is borne by the audit committee. Our model generates predictions relating the board committee structure to the pay-performance sensitivity of CEO compensation, the quality of board oversight, and the level of earnings management.
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Liang, Guodong, and Motoko Akiba. "Characteristics of teacher incentive pay programs: a statewide district survey." Journal of Educational Administration 53, no. 6 (September 7, 2015): 702–17. http://dx.doi.org/10.1108/jea-09-2013-0106.
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Purpose – The purpose of this paper is to examine the characteristics of teacher incentive pay programs used by midsize to large school districts in Missouri. Design/methodology/approach – This study primarily used the Teacher Compensation Programs (TCP) survey data. The TCP survey was developed by the authors to understand the nature and characteristics of financial incentives that Missouri districts used to recruit, reward, and retain quality teachers. Findings – The data showed that, during the 2009-2010 academic year, 32 percent of the districts offered at least one financial incentive to recruit or retain teachers. Districts were more likely to reward teachers for obtaining National Board certification and for assuming extra duties than for teaching in the subject areas of shortage or in hard-to-staff schools. Larger districts with higher teacher salary were more likely than small districts to offer a larger number of incentive pay programs. Originality/value – The findings of this study advance our knowledge of local incentive pay policies. It also contributes to the global discourse of teacher compensation and incentives and can be informative to policymakers in the USA and around the world when designing and implementing incentive pay programs to teachers. Further, it sheds light on the important policy question of whether disadvantaged local educational agencies are more likely to use incentive pay programs to recruit and retain teachers and promote an equitable distribution of the teacher workforce. This informs the decision making of providing targeted support to those in need.
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Chen, Jun, Yan Li Xu, and Dan Liu. "Parameterized Model Design and Extension for Principal-Agent Incentive Mechanism." Applied Mechanics and Materials 55-57 (May 2011): 1869–74. http://dx.doi.org/10.4028/www.scientific.net/amm.55-57.1869.
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Parameterized model of principal-agent incentive mechanism has been designed through mathematical analysis in this paper. The analysis of monitoring mechanism is introduced in the principal-agent incentive mechanism, which extends the theoretical framework of incentives. The results show that: monitoring mechanisms and incentive mechanisms are relevant and the interaction between them has a substitution effect. They can encourage or induce an agent to work hard. Therefore, incentive mechanisms and monitoring mechanisms should be taken into account in the process of compensation contract formation. The introduction of monitoring mechanisms not only has some innovations in theory, but also has great value in practice.
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Drake, Andrea R., Susan F. Haka, and Sue P. Ravenscroft. "Cost System and Incentive Structure Effects on Innovation, Efficiency and Profitability in Teams." Accounting Review 74, no. 3 (July 1, 1999): 323–45. http://dx.doi.org/10.2308/accr.1999.74.3.323.
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The small number of full-scale adoptions of activity-based costing (ABC) coupled with ABC implementation failures have fueled a debate about the costs and benefits of ABC relative to more traditional volume-based costing (VBC) systems. ABC differs from VBC by focusing attention on activities and resources that are under the control of multiple workers. Reducing these costs often requires a coordinated effort. Therefore, incentives that motivate workers to cooperate are a prerequisite to successful process improvements based on ABC. Alternatively, when competitive incentives are combined with ABC, the result can be unexpected and negative. We examine how accounting cost system and incentive structure choices interact. We find that profits are highest when ABC is linked with group-based incentives, which provide high motivation to cooperate. In contrast, the lowest level of profit occurs when the same information-rich cost system, ABC, is coupled with tournament-based incentives. VBC, a cost system that provides a lower level of cost driver information, moderates the incentive effect. Thus, our results demonstrate that the effectiveness of ABC relative to traditional VBC is influenced by its interactive effect with incentive compensation.
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Habel, Johannes, Sascha Alavi, and Kim Linsenmayer. "Variable Compensation and Salesperson Health." Journal of Marketing 85, no. 3 (April 14, 2021): 130–49. http://dx.doi.org/10.1177/0022242921993195.
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Positive effects of incentives on salespeople’s motivation, effort, and performance are well-established in literature. This article takes a novel look at their influence on salespeople’s health. The results of four empirical studies, including more than 1,400 salespeople, suggest that an increasing variable compensation share (i.e., greater pay-for-performance component in salespeople’s compensation plans) increases salespeople’s stress, resulting in emotional exhaustion and more sick days. These outcomes are more likely for salespeople with lower personal ability and fewer social resources. The harmful effects of the variable compensation share on salespeople’s health reduce the positive effects of this incentive on sales performance. To practice better marketing for a better world, if variable compensation is used, the authors recommend that managers screen new hires for job-related resources and help their existing staff build such resources. In addition, companies may personalize incentive schemes and sensitize managers to the stress-inducing effects of variable compensation shares.
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Dias, Alexandre, Victor Vieira, and Bruno Figlioli. "Tracing the links between executive compensation structure and firm performance: evidence from the Brazilian market." Corporate Governance: The International Journal of Business in Society 20, no. 7 (October 23, 2020): 1393–408. http://dx.doi.org/10.1108/cg-05-2020-0199.
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Purpose This study aims to investigate how different executive compensation structures were related to the performance of firms. Design/methodology/approach This study was based on a sample of companies with the highest standards of corporate governance listed on the Brazilian Stock Exchange. We adopted the multiple correspondence analysis followed by the hierarchical cluster analysis to propose a typology defined by fixed and variable components of the executive compensation and multiple firm performance indicators. Findings The analysis produced three clusters, which were submitted to robustness tests, highlighting that companies used the compensatory incentives in striking distinct ways as governance mechanisms. The study found a positive relationship between the performance of companies and the variable incentives of executive compensation, especially the long-term incentive, as well as a negative relationship between the performance of firms and the fixed component of the compensation structure. Research limitations/implications This research, whose sample was based on an emerging market, adds empirical evidence to the literature. However, future studies are invited to address the relationships between executive compensation structures and firm performance in other markets, as well as to examine these relationships in companies with distinct levels of governance. Practical implications This study provides insights on how the incentive structure can be adopted as an efficient governance mechanism, especially for companies in emerging markets. Originality/value The main novelty of this paper is that the methodological strategy used here enabled the authors to discriminate distinct executive compensation structures and establish a relationship between these compensation structures and different types of performance indicators.
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Chen, Qi, Shane S. Dikolli, and Wei Jiang. "Career-Risk Concerns, Information Effort, and Optimal Pay-for-Performance Sensitivity." Journal of Management Accounting Research 27, no. 2 (June 1, 2015): 165–95. http://dx.doi.org/10.2308/jmar-51165.
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ABSTRACT Prior work has established that managers' concerns about the level of their future compensation (i.e., implicit incentives from career concerns) may substitute for explicit incentives in compensation contracts offered to the managers in a single-task setting (Gibbons and Murphy 1992). We show that the substitution effect can be weakened, and even reversed, when managers (1) exert effort, in addition to production effort, to influence information about their ability, and (2) are concerned about both the level and variability of their reputation. We also find that managerial concern about the variability of reputation can lead to the optimal pay-for-performance sensitivity increasing in the underlying risk measure, rather than decreasing in risk, as in standard incentive-risk trade-offs. We test these predictions using a large sample of CEO compensation outcomes. Results are consistent with our model predictions.
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Keune, Marsha B., and Karla M. Johnstone. "Audit Committee Incentives and the Resolution of Detected Misstatements." AUDITING: A Journal of Practice & Theory 34, no. 4 (February 1, 2015): 109–37. http://dx.doi.org/10.2308/ajpt-51080.
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SUMMARY We investigate the role of audit committee economic incentives in judgments involving the resolution of detected misstatements. The results reveal a positive association between audit committee short-term stock option compensation and the likelihood that managers are allowed to waive income-decreasing misstatements that, if corrected, would have caused the company to miss its analyst forecast. Complementary results reveal a positive association between the audit committee long-term stock option compensation and the likelihood that managers are allowed to waive income-increasing misstatements when the company reports just missing, meeting, or beating its analyst forecast. These findings illustrate agency conflicts that can arise when compensating audit committees with options. We obtain these results while controlling for CEO option compensation and audit committee characteristics, along with indicators of corporate governance, auditor incentives, and company characteristics. Data Availability: Data used in the study are available from public sources
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Zhao, Li-jun, and Zheng-wei Wang. "The Dark Side of the Chinese Stock Market: Managerial Rent-Seeking through Equity Incentives." International Journal of Economics and Finance 8, no. 4 (March 23, 2016): 156. http://dx.doi.org/10.5539/ijef.v8n4p156.
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Despite widespread attention, most previous papers have failed to test the real effects of equity-based compensation because of endogeneity. In this study, we collected data from the Chinese companies listed in the Shanghai and Shenzhen stock markets from 2006 to 2012. After controlling the problem of endogeneity and selection bias, the results show that equity incentives have no significant influence on improving firm performance. Moreover, these companies were more likely to propose an equity incentive plan when the executives expected that it would be easy to satisfy the vesting conditions. Based on these facts, equity incentives have become managerial rent-seeking for the executives in the Chinese stock market. This is certainly not fair for the investors in the stock market. This paper uses one new method to study the real effects of equity incentives and contributes to the research on the Chinese stock markets and their compensation structures.
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BRADY, PETER J. "Pension nondiscrimination rules and the incentive to cross subsidize employees." Journal of Pension Economics and Finance 6, no. 2 (June 11, 2007): 127–45. http://dx.doi.org/10.1017/s1474747206002605.
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Among the requirements a pension plan must meet to qualify for tax benefits are the nondiscrimination rules. Nondiscrimination rules are designed to ensure that pension benefits do not disproportionately accrue to highly compensated employees. But the rules are also complex and increase administrative and compliance costs associated with offering a pension plan. Recent pension reform proposals would simplify nondiscrimination rules, reducing administrative and compliance costs and potentially leading to more employers offering pension benefits. However, there are concerns that any loosening of the rules could lead to a drop in participation by low-wage workers. This paper examines the economic incentive that nondiscrimination rules provide to employers to cross subsidize employees; that is, the incentive to increase pension benefits (and total compensation) paid to low-paid workers for the express purpose of enabling high-paid workers to receive a higher proportion of compensation in the form of pension benefits. The study calculates the incentives faced by a hypothetical firm, and then illustrates how those incentives change when assumptions about employee contribution behavior, employee compensation, and employer-matching formulas are allowed to vary. Results show that only firms with a relatively low ratio of low-paid workers to high-paid workers would have an economic incentive under a standard 401(k) plan to cross subsidize employees. Although this incentive may exist in a large number of firms, these firms likely employ only a small portion of the workforce. This is ultimately an empirical question, however, and examining data on the distribution of earnings within pension plans, as well as determining if firms find nondiscrimination rules binding, would be a useful extension of this research.
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Qing Qing, Shen, and Feng Jiang Hua. "Monitoring of the impact factors of employee compensation incentive of big data enterprises based on structural equations." E3S Web of Conferences 214 (2020): 01008. http://dx.doi.org/10.1051/e3sconf/202021401008.
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Through the perspective of employees of big data enterprises in Jiangsu, Zhejiang and Shanghai, data were obtained in the form of questionnaire research, the significance of the influence factors of compensation incentive is evaluated, and the use of the empirical method of structural equations is obtained, and all indicators play a positive incentive role. Among them, the four indicators of salary performance, prospect promotion, equity incentives and welfare benefits are highly motivating. At the same time, four countermeasures are put forward:1. While implementing long-term and short-term salary incentives, pay attention to the principle of ability and performance first; 2. Provide basic benefits and improve the retirement mechanism for employees; 3. Strengthen humanistic care and create simple interpersonal relationships and good communication atmosphere; 4. Improve the post promotion mechanism, clear employee career channel.
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Liu, Baohua, Wan Huang, and Lei Wang. "Performance-based equity incentives, vesting restrictions, and corporate innovation." Nankai Business Review International 10, no. 1 (February 21, 2019): 138–64. http://dx.doi.org/10.1108/nbri-10-2018-0061.
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Purpose Based on the institutional background of mandatory requirement of performance-based executive equity incentives, this paper aims to investigate the impacts of executive equity incentives, vesting periods and vesting performance conditions on corporate innovation. Design/methodology/approach The empirical analysis is based on the detailed data of equity incentives in China’s listed companies from 2006 to 2014, the Tobit method is implemented to estimate the regression coefficients, and the instrumental variable (IV) approach, Heckman two stage regression, propensity score matching and difference-in-difference models are adopted to solve the problem of endogeneity in several robust tests. Findings This paper documents that equity incentives and vesting periods are significantly and positively related to corporate innovation measured by R&D investment and patent applications, yet requirements on vesting performance impede corporate innovative activities. Specifically, compared with non-equity incentive companies, the R&D investment and the number of patent applications of equity incentive companies are 40 and 46.2 per cent higher, respectively. A one year increase in equity incentive duration can correspondingly increase the R&D investment by 15 per cent and the patent applications by 18.3 per cent. However, a one standard deviation increase in industry-adjusted ROE target reduces corporate R&D investment by 5 per cent and the patent applications by 8.39 per cent. The main empirical findings still hold after several robust tests. Research limitations/implications This paper confirms that the impact of performance-based compensation system on corporate innovation depends on its structure. Specifically, the empirical findings suggest that equity incentive plans being correctly designed can enhance corporate innovative activities, but myopic managers will damage the corporate innovation. Originality/value This paper investigates the influence of equity incentive structure on equity incentive effect based on the institutional background of mandatory requirement of performance-based executive equity incentives. It provides an opportunity to understand the mystery of equity incentives, which helps to enrich the structure of equity incentive theoretically. The empirical evidence confirms the importance of tolerating short-term failure and extending the horizon of managerial decision-making on promoting innovation. Overall, the research indicates that only well-designed equity incentive plans can promote innovation, which contributes to regulators and practitioners to form a rational understanding of the premise of equity incentives in promoting innovation and provides a reference for their decision-making.
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Li, Qian, and Ebru Reis. "Managerial compensation and firm performance: Evidence from corporate spinoffs." Corporate Ownership and Control 9, no. 3 (2012): 69–78. http://dx.doi.org/10.22495/cocv9i3art6.
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In this paper, we study changes in the incentive structure of the CEOs in both parent and spun-off companies, and the effect of managerial incentives on operating performance due to an improved agency relationship between shareholders and managers of both firms after the spinoff. We construct a unique dataset that covers corporate spinoffs between 1992 and 2004. We find a certain level of increase in pay-performance sensitivity of the CEOs of spun-off firms as compared to the CEOs of parent firms. We find that pay-performance sensitivities of both parent and spun-off firms’ CEOs are positively related to the operating performance improvement after the spinoff. Overall, our study provides evidence that improved managerial incentive is a source of gains in spinoffs.
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Caton, Gary L., Jeremy Goh, and Jinghao Ke. "The interaction effects of CEO power, social connections and incentive compensation on firm value." Corporate Ownership and Control 16, no. 4 (2019): 19–30. http://dx.doi.org/10.22495/cocv16i4art2.
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Using a regression interaction model and a biographical dataset, with which we can pinpoint periods during which friendships were likely to have developed, we study the relation between company value and the interplay between CEO power, CEO equity incentives and the friendliness of the board of directors. Consistent with our hypotheses developed below, we find that firm value tends to increase when equity incentives are combined with a friendly board of directors, and conclude that the negative effects of CEO power on firm value reported by others are limited to firms with weak CEO equity incentive compensation plans and arms-length boards of directors. We are the first to combine these datasets and show that friendship between powerful CEOs and their boards, when agency problems are mitigated through CEO compensation, leads to higher value.
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Block, Jörn H. "How to Pay Nonfamily Managers in Large Family Firms: A Principal—Agent Model." Family Business Review 24, no. 1 (March 2011): 9–27. http://dx.doi.org/10.1177/0894486510394359.
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A large number of family firms employ nonfamily managers. This article analyzes the optimal compensation contracts of nonfamily managers employed by family firms using principal—agent analysis. The model shows that the contracts should have low incentive levels in terms of short-term performance measures. This finding is moderated by nonfamily managers’ responsiveness to incentives, their level of risk aversion, and measurement errors of effort related to short-term performance. The model allows a comparison between the contracts of family and nonfamily managers. This comparison shows that the contracts of family managers should include relatively greater incentives in terms of short-term performance measures. A number of propositions regarding the compensation of nonfamily managers employed by family firms are formulated. The implications of the model for family business research and practice are discussed.
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Long, Yue-e., and Xinyi Huang. "Do equity incentives for the managements have impact on stock-pricing efficiency? Evidence from China." International Journal of Accounting & Information Management 28, no. 4 (June 1, 2020): 703–15. http://dx.doi.org/10.1108/ijaim-03-2020-0031.
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Purpose The purpose of this paper is to investigate the impacts of equity incentive on stock pricing efficiency, as well as the institutional investors’ response to equity incentive and its role in stock pricing efficiency. Design/methodology/approach Using a sample of 1,842 companies that announce implementing equity incentive schemes during the period 2009-2018, the authors compare the pricing efficiency between the firms with equity incentive and those without equity incentive, and companies that implement equity incentive before and after the implementation of equity incentive by using multiple regression and propensity score matching -DID (difference in difference) method. In addition, the multiple regression model is built to test the response of institutional investors to equity incentive and its role in the efficiency of stock pricing. Findings The empirical results indicate that a company’s stock price is influenced more by firm-specific information than systematic factors after it announces a stock-based compensation scheme. Institutional investors respond positively to companies that implement equity incentives. Among the companies that have implement equity incentive, the higher the shareholding ratio of institutional investors, the higher the efficiency of stock pricing. Originality/value The authors innovatively establish a connection between the implementation of equity incentive and the operation of stock market. The results imply that besides alleviating the agency problem, equity incentives can also improve the efficiency of stock pricing, which provide empirical evidence to support the positive effect of equity incentive.
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Phillips, John D. "Corporate Tax-Planning Effectiveness: The Role of Compensation-Based Incentives." Accounting Review 78, no. 3 (July 1, 2003): 847–74. http://dx.doi.org/10.2308/accr.2003.78.3.847.
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This study investigates whether compensating chief executive officers and business-unit managers using after-tax accounting-based performance measures leads to lower effective tax rates, the empirical surrogate used for tax-planning effectiveness. Utilizing proprietary compensation data obtained in a survey of corporate executives, the relation between effective tax rates and after-tax performance measures is modeled and estimated using a two-step approach that corrects for the endogeneity bias associated with firms' decisions to compensate managers on a pre- versus after-tax basis. The results are consistent with the hypothesis that compensating business-unit managers, but not chief executive officers, on an after-tax basis leads to lower effective tax rates.