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Essays On The Design And Consequences Of Relative Performance Evaluation Incentives In Ceo Compensation Contracts
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Book Synopsis Essays on the Design and Consequences of Relative Performance Evaluation Incentives in CEO Compensation Contracts by : Timothy Michael Keune
Download or read book Essays on the Design and Consequences of Relative Performance Evaluation Incentives in CEO Compensation Contracts written by Timothy Michael Keune and published by . This book was released on 2010 with total page 178 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on managerial incentives by : Konstantinos Tzioumis
Download or read book Essays on managerial incentives written by Konstantinos Tzioumis and published by . This book was released on 2005 with total page 308 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Executive Compensation by : Affan Hameed
Download or read book Essays on Executive Compensation written by Affan Hameed and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Executive Compensation, Strategic Competition, and Relative Performance Evaluation by : Raj Aggarwal
Download or read book Executive Compensation, Strategic Competition, and Relative Performance Evaluation written by Raj Aggarwal and published by . This book was released on 1996 with total page 90 pages. Available in PDF, EPUB and Kindle. Book excerpt: We argue that strategic interactions between firms in an oligopoly can explain the puzzling lack of high-powered incentives in executive compensation contracts written by shareholders whose objective is to maximize the value of their shares. We derive the optimal compensation contracts for managers and demonstrate that the use of high-powered incentives will be limited by the need to soften product market competition. In particular, when managers can be compensated based on their own and their rivals' performance, we show that there will be an inverse relationship between the magnitude of high-powered incentives and the degree of competition in the industry. More competitive industries are characterized by weaker pay-performance incentives. Empirically, we find strong evidence of this inverse relationship in the compensation of executives in the United States. Our econometric results are not consistent with alternative theories of the effect of competition on executive compensation. We conclude that strategic considerations can preclude the use of high-powered incentives, in contrast to the predictions of the standard principal-agent model.
Book Synopsis CEO Risk-Taking Incentives and Relative Performance Evaluation by : Dirk E. Black
Download or read book CEO Risk-Taking Incentives and Relative Performance Evaluation written by Dirk E. Black and published by . This book was released on 2018 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines how changes in CEO risk-taking incentives are associated with changes in the use of relative performance evaluation (RPE) in CEO contracts. Using a shock to the accounting for executive stock options (FAS 123R), I confirm that risk-taking incentives and option grants declined following FAS 123R using a within-firm design, but not a within-CEO-firm design. Decreased risk-taking incentives lead executives to invest in projects with lower systematic risk and can result in reduced incentives to hedge exposure to systematic risk in CEO compensation contracts via RPE. However, CEO relative risk-aversion increases with decreases in risk-taking incentives, potentially increasing incentives to protect CEO wealth from systematic performance via RPE. Testing these competing predictions, I find modest evidence consistent with reduced RPE surrounding FAS 123R, suggesting that when CEO risk-taking incentives are reduced, so are incentives to shield CEO pay from systematic performance.
Book Synopsis Executive Compensation: Empirical Essays on the Antecedents and the Consequences, and the Role of Executive Personality by : Steffen Florian Burkert
Download or read book Executive Compensation: Empirical Essays on the Antecedents and the Consequences, and the Role of Executive Personality written by Steffen Florian Burkert and published by BoD – Books on Demand. This book was released on 2023-03-10 with total page 233 pages. Available in PDF, EPUB and Kindle. Book excerpt: Top managers have a significant impact on organizations because they are responsible for the formulation and implementation of corporate strategies, have the visibility and influence to shape the opinions of internal and external stakeholders, and coin the culture of their organizations, affecting employees at every level of the organization. Research has focused on the drivers and consequences of top managers' actions, with a particular focus on executive compensation, but important questions remain unanswered. This dissertation contributes to the literature on top executives by examining the antecedents of executive compensation, the influence of executive compensation on executive behavior, and the interplay of executive compensation and top executive personality. The first study introduces the role of compensation benchmarking for determining executive compensation to the management literature. It finds that benchmarking leads to compensation convergence. The second study examines the impact of executive compensation complexity on firm performance. The results show that compensation complexity is negatively related to accounting-based, market-based, and ESG-based metric of firm performance. The third study explores the implications of relative performance evaluation (RPE) on the imitation behavior of firms. It finds that the introduction of RPE is positively related to the imitation of the strategic actions of peer firms. The fourth study contributes to the growing literature on the impact of corporate social performance (CSP) goals in CEO contracts. Specifically, it examines how and when CSP incentives influence the CEO's attention to corporate social responsibility topics. The final essay examines the role of CEO personality; it finds that differences in CEO personality explain differences in the level of strategic conformity. Taken together, the essays in this dissertation make a significant contribution to the scholarly discourse on the influence of top managers on their companies. The empirical evidence presented expands the current understanding of how top executives affect strategic firm behaviors, and it provides insights for policymakers, managers, and investors.
Book Synopsis Complex Compensation: Empirical Essays on the Impact of Compensation Design on Firm Performance, Turnover, and Organizational Justice by : Tobias Oberpaul
Download or read book Complex Compensation: Empirical Essays on the Impact of Compensation Design on Firm Performance, Turnover, and Organizational Justice written by Tobias Oberpaul and published by BoD – Books on Demand. This book was released on 2024-01-19 with total page 202 pages. Available in PDF, EPUB and Kindle. Book excerpt: Compensation contracts have become ever more complex and individualized, particularly in the executive compensation domain, where increasingly diverse stakeholder demands and governance requirements have led to the inclusion of more and increasingly interrelated components into compensation contracts. Even the compensation of lower-level employees has become complex as firms individualize employee compensation and use many different rewards simultaneously. Research has examined elements of compensation in isolation but has attempted to avoid the complexities of compensation. This dissertation examines the consequences of compensation complexity and compensation design dispersion and contributes to a better understanding of compensation and its consequences for firms and employees. The first study examines how the complexity of executive compensation contracts affects firm performance. It finds that CEO compensation complexity negatively affects accounting, market, and ESG (i.e., environmental, social, and governance) metrics of firm performance and explores mechanisms that help explain the relationships. The second study examines the effect of compensation design dispersion within top management teams and its impact on executive turnover. The results show that compensation design dispersion affects executive turnover, both directly and in interaction with relative pay level. The third study addresses the role of compensation design dispersion in the development of procedural justice perceptions. Using two experiments, this study shows that compensation design dispersion causes lower procedural justice perceptions, which appears to be less problematic for participants with relatively easier to understand contracts. In summary, this dissertation provides a nuanced overview of complex compensation design and compensation design dispersion. The findings contribute to a better understanding of the effectiveness of compensation as an incentive and sorting tool for organizations, and of the implications of compensation design for the functioning of teams.
Book Synopsis The Presence, Value, and Incentive Properties of Relative Performance Evaluation in Executive Compensation Contracts by : J. Carr Bettis
Download or read book The Presence, Value, and Incentive Properties of Relative Performance Evaluation in Executive Compensation Contracts written by J. Carr Bettis and published by . This book was released on 2014 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using data that includes specific contractual details of Relative Performance Evaluation (RPE) contracts granted to executives for 1,833 firms for the period 1998 to 2012, we develop new methods to characterize RPE awards and measure their value and incentive properties. The frequency in the use of these awards has grown over time with 37% of the firms in our sample granting an RPE award in 2012. When RPE awards are used they are typically granted to the five named executive officers and they represent about 32% of total recipient compensation. Stock is most frequently the instrument conveyed, followed by cash, and options are almost never granted. RPE awards are more likely to be used at firms with diversified business lines, less concentrated industries, greater exposure to systematic risk, larger size, lower M/B, higher dividend yield, fewer insiders on the board, greater institutional ownership, and that engage a compensation consultant. The typical award is a rank-order tournament based on three year stock returns compared to a select group of 13 peers (median) and is paid out with stock. Payout functions typically include regions of concavity, convexity, explicit inelasticity, and implicit inelasticity. The median firm achieves a threshold for at least some payout of stock or cash about 70% of the time and target payout about 50% of the time. In general, RPE grant value differs significantly from the fair market value reported by firms. We find that RPE awards convey to executives the incentive to increase shareholder wealth. RPE awards of stock contingent on either stock or accounting performance and RPE awards of cash contingent on accounting performance convey the incentive to increase firm risk, while RPE cash awards do not. These incentives can be significant in comparison to those conveyed by APE grants with similar attributes.
Download or read book Pay for Results written by Mercer, LLC and published by John Wiley & Sons. This book was released on 2009-03-17 with total page 288 pages. Available in PDF, EPUB and Kindle. Book excerpt: The numerous incentive approaches and combinations and their implications can be dizzying even to the compensation professional. Pay for Results provides a road map for developing and implementing executive incentives that drive business needs and strategy. It is filled with specific analytic tools, including tables, exhibits, forms, checklists. In addition, it uncovers myths in performance measurement strategy and design. Timely and thorough, this book expertly shows businesses how to drive their specific needs and strategy. Human resources and compensation officers will discover how to apply performance metrics that align with shareholder investment.
Book Synopsis Inducements in Organizations by : Nicolas Tichy
Download or read book Inducements in Organizations written by Nicolas Tichy and published by BoD – Books on Demand. This book was released on 2023-03-14 with total page 234 pages. Available in PDF, EPUB and Kindle. Book excerpt: Executive compensation has inspired controversial debate in both academia and the general public, and many voices criticize that executive compensation designs fail to deliver desired outcomes. Although much research has been devoted to understanding the antecedents and consequences of executive compensation design, important questions remain unanswered. This dissertation contributes to the field by exploring a previously neglected aspect: executive compensation complexity. Given the absence of an established measure of executive compensation complexity, there is an incomplete understanding of how complexity enters executive compensation contracts and what the consequences are for managers and corporations. The essays of this dissertation aim to narrow this gap. The first study presents a novel measure of executive compensation complexity, which is validated and utilized to examine the antecedents of executive compensation complexity. The second study explores the consequences of executive compensation complexity and finds that complexity impairs firm performance, regardless of the performance metric chosen (accounting-based, market-based, or ESG-based performance metrics). The third study explores the link between compensation design dispersion and executive turnover and reveals that executives with riskier compensation packages and fewer performance goals are more likely to move. The fourth study provides experimental evidence on the effect of CSR Fit dimensions and organizational reputation. Taken together, the essays of this dissertation make a significant and valuable contribution to the scholarly discourse on executive compensation. By shedding light on the complex nature of executive compensation and its implications for managers and corporations, this dissertation advances the current understanding of executive compensation and provides insights for policymakers, managers, and investors.
Book Synopsis Executive Compensation, Strategic Competition, and Relative Performance Evaluation by : Rajesh K. Aggarwal
Download or read book Executive Compensation, Strategic Competition, and Relative Performance Evaluation written by Rajesh K. Aggarwal and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines optimal compensation contracts for managers of firms in imperfectly competitive markets. Previous studies have not found convincing evidence of high-powered incentives and relative performance evlauation. We show that strategic interactions among firms can explain this lack of strong performance-based incentives. When managers can be compensated based on their own and their rivals' performance, the need to soften product market competition generates an optimal compensation contract that places a positive weight on both own and rival performance. Across industries, the theory also predicts that firms in more competitive industries place greater weight on rival firm performance relative to own firm performance. We test the predictions empirically using recent data on compensation of executives at large corporations. We find evidence of a positive sensitivity of compensation to rival firm performance which is increasing in the degree of competition in the firm's industry.
Book Synopsis Relative Performance Evaluation and Earnings Management by : Jakob Infuehr
Download or read book Relative Performance Evaluation and Earnings Management written by Jakob Infuehr and published by . This book was released on 2018 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: The conventional view suggests that firms should benchmark CEO compensation to absorb systemic risk and to more efficiently incentivize executives to work hard. Yet, empirical research has found only a modest use of benchmarking in compensation contracts. In this paper, I highlight one weakness of relative performance evaluation. When earnings management is possible, benchmarking creates stronger incentives for misreporting performance measures compared to competitor-independent pay. The optimal contract will depend less on a correlated benchmark if it is easier for the manager to misreport performance. This result may explain why benchmarking CEO compensation is not as widespread in the business world as previously predicted.
Book Synopsis Essays on CEO Compensation by : Scott William O'Brien
Download or read book Essays on CEO Compensation written by Scott William O'Brien and published by . This book was released on 2016 with total page 84 pages. Available in PDF, EPUB and Kindle. Book excerpt: The two essays of my dissertation examine issues concerning CEO compensation. First, I examine the use of relative performance evaluation (RPE), asymmetry in pay for skill/luck, and compensation benchmarking for a sample of firms involved in a spinoff. The spinoff affects firm characteristics that influence the use of these compensation practices. I find that RPE is used for post-spinoff CEOs, but not pre-spinoff CEOs. This result is consistent with RPE being more prevalent as performance benchmark firms are easier to identify. Post-spinoff CEOs are also paid asymmetrically for luck where they are rewarded for good luck but not punished for bad luck. Both pre- and post- spinoff CEOs receive similar levels of compensation benchmarking. Second, I study the role of reference points in CEO compensation. Using two samples, I identify multiple reference points and link the reference points to the behavioral phenomena of prospect theory and anchoring-and-adjusting. In a sample of CEOs who move from one company to another (mover sample), I estimate the CEOs' expected gain or loss in compensation as a result of the move, but do not find the effects of the expected gain or loss to be consistent with prospect theory preferences. Also in the mover sample, I find evidence of anchoring-and-adjusting where the compensation of the incoming CEO's predecessor (anchor) affects the compensation of the incoming CEO. Lastly, I find evidence that fiscal year high and low prices act as reference points where drops from the fiscal year high price to the fiscal year end price result in larger decreases in compensation than increases in compensation from the fiscal year low price to the fiscal year end price, consistent with prospect theory.
Book Synopsis Relative Performance Evaluation in CEO Compensation by : David De Angelis
Download or read book Relative Performance Evaluation in CEO Compensation written by David De Angelis and published by . This book was released on 2019 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: Relative performance evaluation (RPE) in CEO compensation can be used as a commitment device to pay CEOs for their revealed relative talent. We find evidence consistent with the talent-retention hypothesis, using two different approaches. First, we examine the RPE terms in compensation contracts and document features that are consistent with retention motives. Second, using a novel empirical specification for detecting RPE, we find RPE is less prevalent when CEO talent is less transferrable: among specialist CEOs, founder CEOs, and retirement-age CEOs, as well as in industries and states where the market for CEO talent is more restrictive.
Book Synopsis CEOS' Outside Employment Opportunities and the Lack of Relative Performance Evaluation in Compensation Contracts by : Shivaram Rajgopal
Download or read book CEOS' Outside Employment Opportunities and the Lack of Relative Performance Evaluation in Compensation Contracts written by Shivaram Rajgopal and published by . This book was released on 2005 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: Although agency theory suggests that firms ought to index executive compensation to remove market-wide effects (i.e., RPE), there is little evidence to support this theory. Oyer (2004) posits that absence of RPE is optimal if the CEO's reservation wages from outside employment opportunities rise and fall with the economy's fortunes. We directly test and find support for Oyer's (2004) theory. We argue that the CEO's outside opportunities depend on his talent proxied by the CEO's financial press visibility and his firm's recent industry-adjusted ROA. Our results are robust to alternate explanations such as managerial skimming, oligopoly and asymmetric benchmarking.
Book Synopsis The Other Side of the Tradeoff by : Andrew Samwick
Download or read book The Other Side of the Tradeoff written by Andrew Samwick and published by . This book was released on 1998 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: The principal-agent model of executive compensation is of central importance to the modern theory of the firm and corporate governance, yet the existing empirical evidence supporting it is quite weak. The key predication of the model is that the executive's pay-performance sensitivity is decreasing in the variance of the firm's performance. We demonstrate strong empirical confirmation of this prediction using a comprehensive sample of executives at large corporations. In general, the pay-performance sensitivity for executives at firms with the least volatile stock prices is an order of magnitude greater than the pay-performance sensitivity for executives at firms with the most volatile stock prices. This result holds for both chief executive officers and for other highly compensated executives. We further show that estimates of the pay-performance sensitivity that do not explicitly account for the effect of the variance of firm performance are biased toward zero. We also test for relative performance evaluation of executives against the performance of other firms. We find little support for the relative performance evaluation model. Our findings suggest that executive compensation contracts incorporate the benefits of risk-sharing but do not incorporate the potential informational advantages of relative performance evaluation
Book Synopsis On the Design of CEO Compensation Contracts by : Yuqing Zhou
Download or read book On the Design of CEO Compensation Contracts written by Yuqing Zhou and published by . This book was released on 2007 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: The empirical literature testing hypotheses on the casual relation between the CEO compensation policies and other factors mainly relies on the predictions by the classical principal-agent theory, which are mostly descriptive and vague. In this paper we develop a theory of optimal CEO compensation design in continuous-time that incorporates several important factors of practical relevance into analysis. Our model is tractable and has a closed-form nonlinear solution. It provides a uni𓏭 framework that links the CEO compensation schemes to three dimensions that are perceived to be mostly relevant in practice: 1) the ijrm's accounting return; 2) the ijrm's stock return and 3) relative performance measures such as market indexes. We show that the design of the optimal CEO compensation can be decomposed into two steps. First, an aggregate performance index (API), which is a certain linear combination of the three signals, is constructed. Second, the optimal compensation is shown to be a nonlinear function of the API. Testable implications are derived and their relevance to empirical literature is discussed in details.
