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Korean firms are required to obtain shareholder approval on their executive pay cap―the maximum possible amount of total compensation for all executives. This paper investigates the efficacy of the executive pay cap requirement by analyzing the determinants and implications of the executive pay cap of Korean firms. We document that the executive pay cap is not a boilerplate figure and is associated with corporate governance and economic factors. We find that the executive pay cap is adjusted according to changes in firm performance and that a significant portion of sample firms revise their executive pay cap downwards. However, we only observe this phenomenon when foreign ownership is high, largest shareholders’ ownership is high, a controlling shareholder is a board member, and the firm is a non-chaebol firm. Thus, we find that the external and internal monitoring mechanisms affect whether the executive pay cap is better aligned with firm performance. Our results also suggest that the executive pay cap is used as an anchor for determining executive compensation. We do not find support for the alternative possibility that firms could signal future firm performance through the executive pay cap.

SYNOPSIS Section 953 (b) of the Dodd-Frank Act requires all listed firms to disclose a CEO-employee pay ratio. Firms are given the flexibility to use permitted discretions in their required pay ratio calculation and to disclose a supplementary pay ratio if necessary. We analyze the CEO-employee pay ratio disclosure of S&P 1500 firms with fiscal year-ends from December 31, 2017, through December 31, 2018. We find that both informational and opportunistic motives affect firms' supplementary pay ratio disclosure, while informational motives appear to dominate firms' use of permitted discretions. Firms consider political costs when utilizing the flexibility in the pay ratio disclosure. Firms with labor market signaling incentives disclose a supplementary pay ratio that is higher than the required pay ratio. The supplementary pay ratio, when issued, captures a firm's economic pay disparity better than the required pay ratio and is positively associated with subsequent firm performance. Data Availability: Data are available from public sources indicated in the text.

Whereas practitioners often recommend that firms incorporate forward-looking information in setting executive performance targets, academic studies have mainly focused on past information (e.g., past performance) as information sources. Using analysts' annual earnings forecasts as the main proxy for market-based forward-looking information, we find evidence that boards of S&P 1500 firms exploit forward-looking information in setting targets for executive annual bonus contracts. Furthermore, we find that the positive association between analyst forecasts and firms' bonus target revisions is more pronounced when forecasts are more informative about future firm performance and when they are less likely to be influenced by managers. Our results are robust to a battery of sensitivity tests. Data Availability: Data are available from the public sources indicated in the text.

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.

With each single X-ray pulse having its own characteristics, understanding the individual property of each X-ray free-electron laser (XFEL) pulse is essential for its applications in probing and manipulating specimens as well as in diagnosing the lasing performance. Intensive research using XFEL radiation over the last several years has introduced techniques to characterize the femtosecond XFEL pulses, but a simple characterization scheme, while not requiring ad hoc assumptions, to address multiple aspects of XFEL radiation via a single data collection process is scant. Here, it is shown that single-particle diffraction patterns collected using single XFEL pulses can provide information about the incident photon flux and coherence property simultaneously, and the X-ray beam profile is inferred. The proposed scheme is highly adaptable to most experimental configurations, and will become an essential approach to understanding single X-ray pulses.

This study investigates whether firms revise executive bonus compensation targets based on past performance. Studies in this area suffer from a lack of detailed information related to executive performance targets. Using mandatory disclosures of executive compensation information under the U.S. Securities and Exchange Commission's new disclosure rules, this study provides the first large-sample evidence of bonus target ratcheting. There are three major findings: (1) Executive bonus targets ratchet and they ratchet asymmetrically; (2) the degree of target ratcheting and ratcheting asymmetry vary with executive equity incentives and investment opportunities; and (3) performance relative to bonus target is serially correlated. This article is protected by copyright. All rights reserved.

Manuscript Type Empirical Research Question/Issue While most prior studies on the value of political connections focus on the political connections of controlling shareholders and top management, we examine the performance impact of appointing politically connected outside directors (PCODs) in Korean chaebol firms. Research Findings/Insights Using a manually collected sample of PCODs in Korean chaebol firms, we find that larger, high-performing, less volatile firms with a larger board and higher divergence between voting rights and cash flow rights are more likely to appoint PCODs in the next year. We also report that firms with a high number of PCODs exhibit better operating performance and enjoy lower risk. On the other hand, we find evidence of weak monitoring ability by PCODs. Overall, we suggest that the number of PCODs correlates positively with firm performance, and that the value effect of PCODs increases with the importance of internal trade among group affiliates, the existence of inside directorship by controlling shareholders, and potential settlements from pending litigation. We further differentiate between PCODs and find that former government officials as PCODs drive our findings. Theoretical/Academic Implications This study contributes to corporate governance knowledge by revealing the relationship between PCODs and firm performance via an empirical inquiry into the role of PCODs on the board. As the controlling shareholders of Korean chaebol firms obtain greater private benefits of control, and such firms may face active government involvement in curbing controlling shareholders’ rent extraction, we examine the role and effects of PCODs in these situations and find evidence of the PCOD's value-enhancing effect. We also complement and extend prior studies by providing more direct mechanisms through which PCODs can add value above and beyond firms’ ownership structure. Additionally, we expand the concept of political connection by analyzing outside directors’ human and social capital from the resource dependence theory perspective. Our attempt complements prior research's exclusive focus on connections of large shareholders or top executives to political parties and is more comprehensive in illustrating the firm's dynamic business environment. Practitioner/Policy Implications The results of our study are potentially useful to regulators, who will benefit from an understanding of how the presence of PCODs on boards affects firm performance. In particular, our results suggest that in countries where recent reforms aim to improve minority investor protection and market confidence, regulators should consider the composition of outside directors as well as explicit board independence. The results of our study may also be useful to investors, financial analysts, and auditors, as they highlight the importance of considering specific features of board composition when assessing firms’ future operating performance and risk mechanisms.

In this paper, we examine the effect of introducing an incentive plan based on social performance in a sample of 188 social mission–oriented firms in Korea. We find that social performance of social enterprises (SEs) significantly improves over time after the introduction of an incentive plan based on social performance. Moreover, we document that social bonuses do not harm SEs’ financial performance, and that they have a positive spill-over effect on financial performance in SEs that have a higher level of task complementarity between social and financial goals. Finally, our results show that the positive association between social bonuses and social performance is less (more) pronounced in SEs whose managers have higher levels of prosocial motivation (perceived measurability of social performance).

We examine boards of directors’ subjective adjustments to objective performance measures in executive incentive contracts. Using a unique hand-collected sample of adjusted earnings per share measures used to determine executives’ annual bonuses, we provide large-sample evidence that subjective adjustments are related to uncontrollable noise, firms’ demand for congruity improvement, and the need to meet CEOs’ participation constraints. We also find that managers are more likely to meet or beat their performance targets when boards adjust their realized earnings. Finally, we find that the ex ante option to adjust mitigates managerial short-term focus more effectively than ex post adjustments. Overall, our findings suggest that boards use subjective adjustments to alleviate the limitations of formula-based incentive contracts.

Section 953 (b) of the Dodd-Frank Act requires all listed firms to disclose a CEO-employee Pay Ratio. Firms are permitted certain discretions in the Pay Ratio calculation and can disclose a Supplementary Pay Ratio if necessary. In this paper, we analyze initial CEO-employee Pay Ratio data disclosed from January to July 2018 by 1,125 firms in the S&P 1500 Index. We examine whether firms disclose a Supplementary Pay Ratio to inform stakeholders of the Pay Ratio more transparently or to manage stakeholder perceptions of the Pay Ratio. We find evidence consistent with both informational and opportunistic motives driving the Supplementary Pay Ratio disclosure. Furthermore, firms appear to consider two different kinds of political costs—the political costs of disclosing a high Pay Ratio and the political costs of disclosing a supplementary “downward” Pay Ratio. Finally, we find that some firms disclose a Supplementary Pay Ratio higher than the Required Pay Ratio to signal the existence of stronger tournament incentives for labor market considerations.

The authors examine factors influencing the executive pay multiple (executive-employee pay disparity) and its effects on performance. Using unique data from Korea, where all publicly listed firms are required to provide detailed information on average employee pay in their annual reports, they find that a substantial portion of cross-sectional variation in the executive pay multiple is explained by the firm’s economic and political characteristics. Results also indicate that the executive pay multiple has a statistically significant negative relation with subsequent operating and stock return performance. A two-stage approach, however, reveals that the performance effects of the executive pay multiple are likely to be influenced more by deviations from the expected executive pay multiple, estimated using the first-stage determinant model, than by the absolute pay multiple per se. The study sheds light on recent debates regarding the usefulness of executive pay multiple disclosure.

Received February 17, 2015 Revised April 17, 2015 Accepted April 17, 2015 Address for correspondence: Jae Wook Cho, MD Department of Neurology, Pusan National University School of Medicine, 20 Geumo-ro, Mulgeum-eup, Yangsan 626-770, Korea Tel: +82-55-360-3014 Fax: +82-55-360-2152 E-mail: sleep.cho@gmail.com 일산화탄소중독은 가장 흔하게 발생하는 가스중독이지만 증 상과 징후가 모호하거나 다양하다. 두통, 어지럼, 근위약감, 구 역, 구토, 의식소실 등이 나타날 수 있는데 이 중 두통은 가장 흔하고 초기에 발생하는 증상이다. 하지만 일산화탄소 만성노 출에 의한 두통은 전형적인 양상이 없고 신경학적 이상 소견을 동반하는 경우가 많지 않아 두통만 호소할 경우 일산화탄소 유 발 두통이라 진단하기가 쉽지 않다. 급성 일산화탄소중독에 대 한 보고는 많았으나 만성노출로 인한 두통에 대한 국내문헌 보 고는 아직 없다. 저자들은 장기간 일산화탄소에 노출되어 발생 한 두통 환자를 경험하여 보고한다.

We examine factors influencing firms' strategic disclosure of executive pay in Korea. In Korea, executive pay is disclosed through directors' pay disclosure in a firm's annual report. Because the disclosure rules in Korea do not mandate but only recommend that firms distinguish between inside executive directors and outside nonexecutive directors when reporting the average pay of directors, this regulatory policy provides a unique opportunity to examine managers' incentives to opportunistically manage the disclosed levels of average executive pay. We find that strategic disclosure for cloaking executive pay prevails when firms have weak corporate governance and high (low) political costs of disclosing high levels of executive pay (making strategic disclosures), but that such disclosure is not associated with proprietary costs. Furthermore, using the subsample of firms that can choose between different types of strategic disclosures, we examine whether firms base their choice on the political costs of making the strategic disclosures. In our data setting, there are two major ways of strategically managing the disclosed average executive pay downward: (1) deliberate aggregation of inside and outside director pay in the calculation of average director pay, and (2) inclusion of part-time inside directors who receive a minimal or substantially low level of pay (which, of the two schemes, is the less visible). Our results suggest that the higher the political costs of a firm's strategic disclosures are, the less visible the firm's cloaking of executive pay will be. Data Availability: Data are available from public sources identified in the text.

Background and Purpose: Patients who have acute stroke symptoms present on awakening are ineligible for standard intravenous thrombolysis due to the unclear onset time of symptoms. Some of these wake-up stroke (WUS) patients may benefit from endovascular recanalization. This study aimed to evaluate clinical predictors of outcomes from endovascular recanalization in WUS patients. Methods: Forty-one WUS patients with internal carotid (ICA) or middle cerebral artery (MCA) occlusion treated with endovascular recanalization were reviewed. Regression analysis was performed to measure clinical predictors of outcomes from endovascular recanalization in WUS patients. Results: The mean initial NIHSS score was 16.41 ± 4.96 (5-24). The mean symptom recognition-to-door time (SRDT) was 108.85 ± 65.80 (19-230) minutes. Successful recanalization (TICI 2b-3) was achieved in 29 patients (70.7%). Thirty-four patients improved on NIHSS (amount 7.59 ± 4.84, range; 1-17) at 7 days after recanalization. At 90 days after recanalization, a mRS of ≤ 2 was achieved in 19 patients (46.3%) and a mRS of ≤ 3 was achieved in 24 patients (58.5%). No symptomatic intracerebral hemorrhage occurred. Multivariate regression analysis identified SRDT (P=0.019), successful recanalization (P=0.005), and hypertension (P=0.013) were factors associated with an improvement of the NIHSS score. For a good functional outcome at 90 days, SRDT (P=0.036) and initial NIHSS score (P=0.016) were found to be significant predictors. Conclusions: The results of this study suggest that the SRDT is an independent predictor of both an improvement of NIHSS score and a good functional outcome after endovascular recanalization in WUS patients.

In a setting where total sales targets are dictated by corporate headquarters, we study how supervisors allocate sales targets to individual stores. Specifically, we analyze whether supervisors strategically use their discretion in the target-setting process to deal with compensation contracting issues. We begin by examining whether supervisors use their discretion to manage compensation risk. The results are consistent with the agency prediction that supervisors provide easier targets to stores that face higher levels of store-specific risk. Next, we examine whether discretion is used to mitigate fairness concerns. The results suggest that, consistent with behavioral arguments, supervisors use their discretion to deal with fairness issues, even if the area in which the supervisor is granted discretion is not the source of the fairness concerns. Finally, we analyze whether supervisors use their discretion in the target-setting process to reduce their potential confrontation costs. Consistent with research in psychology, we find that supervisors provide easier targets to store managers with relatively higher hierarchical status.

In this article, the authors develop and test a theory on the effect of institutional investor heterogeneity on CEO pay. Their theory predicts that institutional investors’ incentives and capabilities to monitor CEO pay are determined by the fiduciary responsibilities, conflicts of interest, and information asymmetry that institutional investors face. Their theory suggests, in contrast to previous literature, that public pension funds and mutual funds exert different effects on CEO pay at their portfolio firms because they do not have the same monitoring incentives and capabilities. Using a longitudinal sample of S&P 1500 firms for the years 1998 to 2002, the authors find that public pension fund ownership is more negatively—indeed, oppositely—associated with both the level of CEO pay and CEO pay-for-performance sensitivity than mutual fund ownership. Their findings suggest that (a) researchers’ use of institutional investor classifications that do not distinguish public pension fund ownership and mutual fund ownership can be misleading and (b) while CEO pay critics have called for pay plans that are in line with the “less pay and more sensitivity” principle, this may be an ineffective goal to pursue.

We examine the effect of missing quarterly earnings benchmarks on Chief Financial Officer (CFO) turnover and compensation. We consider two well-known earnings benchmarks: 1) consensus analyst earnings forecast, and 2) earnings for the same quarter of the prior year. Our results are consistent with significant bonus and career consequences to CFOs of failure to meet quarterly earnings benchmarks. Our evidence suggests that missing one quarter of consensus analyst earnings forecast in the prior year increases the probability of CFO dismissal by 18.57%, after we control for established determinants of executive turnover. Overall, our findings provide evidence that missing earnings benchmarks has economically significant adverse consequences for a CFO's bonus compensation and future career. Further, we find that the effect of missing the consensus analyst forecast on CFO dismissal is more pronounced for firms with better governance, consistent with better-governed firms considering negative earnings surprise more seriously as a signal of poor performance. These adverse consequences create pressure for CFOs to manage or manipulate earnings in order to meet earnings targets. … Just after the IPO in 2000, Krispy Kreme replaced longtime Chief Financial Officer Paul Beitbach with newcomer John Tate … who was forced out as CFO of Williams-Sonoma after missing two quarterly earnings fore- casts. … Tate was promoted to Chief Operating Officer in 2002, and longtime controller Randy Casstevens was pro- moted to the top finance spot. Casstevens lasted less than eighteen months and turned in a "purely voluntary" resigna- tion just five months before the company's first quarterly earnings shortfall. To replace Casstevens, the company brought in Michael Phelan, a key member of the investment banking team that executed Krispy Kreme's IPO and follow- on offering, who in turn lasted less than two years in the

I empirically examine the role of the correlation between earnings and stock returns in determining the structure of compensation packages for top executives. I develop two competing hypotheses on the relation between the returns-earnings correlation and the structure of executive compensation and empirically test the association between the returnsearnings correlation and use of stock-based pay. The results show that the returns-earnings correlation is positively associated with the use of stock-based compensation, after controlling for other determinants of stock-based compensation such as firm size and firm’s growth opportunities.

Using 1997–1999 annual performance evaluation data of 214 postal stores in Korea, we find that financial performance improves following the implementation of an incentive plan that includes relative performance measures, and that under this incentive plan, the degree of common uncertainty is positively associated with store profitability. We also find evidence that the incentive effect of the plan is mitigated in stores at which the employees' perceived unfairness is likely to be high. Finally, we find that the net benefits of introducing the incentive plan may be conditional on the degree of common uncertainty, which appears to be inversely related to the perceived unfairness attributable to the introduction of the contract with relative performance measures.

Recent scandals allegedly linked to CEO compensation have brought executive compensation and perquisites to the forefront of debate about constraining executive compensation and reforming the associated corporate governance structure. We briefly describe the structure of executive compensation, and the agency theory framework that has commonly been used to conceptualize executives acting on behalf of shareholders. We detail some criticisms of executive compensation and associated ethical issues, and then discuss what previous research suggests are likely intended and unintended consequences of some widely proposed executive compensation reforms. We explicitly discuss the following recommendations for reform: require greater independence of compensation committees, require executives to hold equity in the corporation, require greater disclosure of executive compensation, increase institutional investor involvement in corporate governance (including executive compensation), and require firms to expense stock options on their income statements. We provide a brief summary discussion of ethical issues related to executive compensation, and describe possible future research.

While compensation consultants are known to play an important role in the design of executive compensation contracts, evidence on the effect of compensation consultants on CEO pay is mixed. Using a sample of 3,198 compensation consultant engagements and 576 executive compensation consulting fee observations from S&P 1500 firms for fiscal years 2009 to 2011, we examine the relation between executive compensation consulting (EC) fees and non-EC fees paid to executive compensation consultants and CEO pay. We find that CEO pay is higher when compensation consultants receive higher EC consulting fees. Additional analysis suggests that compensation consultants recommend higher CEO pay when they receive greater than expected fees for EC consulting. We further find that the positive association between EC fees and CEO pay is driven largely by weakly governed firms. We find limited evidence, however, that consultants’ cross-selling incentives are associated with greater CEO pay.

The determinants of CSR disclosure have not been researched extensively. In this research, using the framework from traditional voluntary disclosure studies, we connect CEO compensation structure with CSR disclosure. Following Nagar, Nanda, and Wysocki (2003), we predict that more stock compensation for the CEO would lead to more frequent CSR disclosures, by aligning the interest of CEOs and the interest of shareholders. Similarly, we expect that the debt compensation of the CEO would align the interest of CEOs and the interest of debt holders. Because debt holders prefer more disclosure about the private information of CEOs, we predict that there is positive relation between the amount of CEOs’ debt compensation and CSR disclosure. We find that when the CEO’s stock compensation and debt compensation increases, the firm discloses CSR reports more frequently. Prior study has found that the founder CEO does not issue voluntary disclosures frequently (Chen, Chen, and Cheng, 2008). However if the founder CEO receives a substantial amount of stock compensation, the probability of issuing CSR reports increases. This paper sheds lights on the CSR studies by linking the framework of voluntary disclosure studies to CSR disclosures.

We examine factors influencing firms’ strategic disclosure of executive pay in Korea. Because the disclosure rules in Korea do not mandate but only recommend that firms distinguish between inside executive directors and outside directors when reporting the average pay of directors, this regulatory policy provides a unique opportunity to examine managers’ incentives to manage the disclosed levels of average executive pay opportunistically. We find that strategic disclosure for cloaking executive pay prevails when firms have weak corporate governance and high political costs of making strategic disclosures but that such disclosure is not associated with proprietary costs. Furthermore, we examine whether or not firms choosing different types of strategic disclosures base the choice on the political costs of making the strategic disclosures. In our data setting, there are two major ways of strategically managing the disclosed average executive pay downward: (1) deliberate aggregation of inside executive director pay and outside director pay in the calculation of average executive pay and (2) inclusion of part-time inside directors who receive a minimal or substantially low level of pay (which, of the two schemes, is the less visible). Our results suggest that the higher the political costs of a firm’s strategic disclosures, the less visible the firm’s cloaking of executive pay will be.

Dear Editor: Focal acantholytic dyskeratosis (FAD) was first described by Ackerman1 in 1972 as a distinct histopathological pattern associated with various cutaneous conditions, and with classic histopathological findings including suprabasal clefting, hyperkeratosis and parakeratosis, and the presence of acantholytic and dyskeratotic cells at the epidermis. While FAD can be observed in many various cutaneous lesions including benign and/or malignant epithelial lesions, fibrohistiocytic lesions, inflammatory lesions, melanocytic and/or follicular lesions2-4. These histopathological findings may also extend into the surrounding tissues, which often appear to be clinically normal. A 42-year-old woman was presented to our department with multiple erythematous pruritic papules and tiny vesicles on her face. The lesions had been present for several years and aggravated 7 days ago. Physical examinations revealed multiple 2 to 3 mm, slightly spongiotic-appearing papules and tiny vesicles with serous crusts on the face (Fig. 1). Laboratory tests obtained at that time were within normal limits. A skin biopsy of an erythematous papule on the nose was also performed, and histopathological results revealed focal suprabasilar clefting and acantholytic keratinocytes in the epidermis, dense inflammatory infiltrates and vascular dilatation with solar elastosis in the dermis, and a negative direct immunofluorescence (Fig. 2). In the serial sections, we observe the same findings. Differential diagnosis for the possibility of polymorphous light eruption, systemic lupus erythematosus, contact dermatitis, and dermatitis artefacta should be considered. But given these clinical and histopathological features, a diagnosis of rosacea with FAD was reached. The patient was then admitted to hospital for treatment with doxycycline 100 mg and antihistamines. After one week, the lesions had remarkably improved. The patient was then discharged, and continued on the same therapeutic regimen for an additional month, bythe time all lesions were nearly resolved. Fig. 1 (A) Multiple erythematous papules and tiny vesicles on the face, especially on the nose area. (B) Nose with diffuse erythema, multiple erythematous papules and tiny edematous vesicles. A biopsy was performed at the site of the erythematous papule indicated ... Fig. 2 Hyperkeratosis, acantholysis with suprabasilar clefting, with dermal vascular dilatation and inflammatory infiltrates (A; H&E stain, ×40). Epidermal hyperkeratosis and suprabasilar clefting, with scattered acantholytic (full lined arrow) ... To date, the etiology of FAD has been attributed to numerous sources including hormones, viral infection, various immunologic factors, tobacco use, physical stimuli although the exact causative mechanism of this finding remains unknown. Other researches have suggested that sunlight and/or ultraviolet radiation may lead to the development of FAD5. In our case, we propose that the acantholytic dyskeratosis occurred secondarily to ultraviolet radiation exposure, given the lesion's location on the nose, a chronically sun-exposed area. Furthermore, chronic physical irritations may also have influenced, as the patient complained of severe pruritus limited to the affected area, the resulting excoriations which possibly lead to acantholytic dyskeratosis. To the best of our knowledge, there have not been any prior reports of FAD associated with rosacea. We also contended that UV exposures combined with consistent physical irritation (i.e. excoriation) which represent two prime etiological factors contributing to the development of FAD in our patient. Therefore we report herein a case of FAD associated with rosacea and this report may provide additional explanation of pathomechanism in incidental FAD in the setting of rosacea.

This paper empirically examines the interactive effect of competition intensity and competition type on the use of customer satisfaction measures in executives’ annual bonus contracts. Specifically, we predict a stronger association between competition intensity in an industry and the use of customer satisfaction measures in executives’ annual bonus contracts when the competition is non-price-based than when the competition is price-based. Using hand-collected data from S&P 1500 firms’ disclosures of the use of customer satisfaction measures in executive bonus contracts in 2006 and 2010 proxy statements, we find results consistent with our prediction. Our results are robust to alternative measures of competition type and competition intensity. We also find similar results when we use the weight on customer satisfaction measures in executive bonus contracts as the dependent variable. Our study extends the literature on the effect of competition on the design of managerial incentives by distinguishing between competition intensity and competition type and providing the first large-sample empirical evidence on the joint effect of these two dimensions of competition on the incentive use of an important nonfinancial performance measure.

This study examines the explicit use of relative performance evaluation (RPE) in executive compensation contracts and the selection of RPE peers. Using S&P 1500 firms’ first proxy disclosures under the SEC’s 2006 executive compensation disclosure rules, we find that about 25 percent of our sample firms explicitly use RPE in setting executive compensation. We demonstrate that a lack of knowledge of both actual peer-group composition and the link between RPE-based performance targets and future peer performance significantly hinder the traditional implicit test from detecting RPE use. We also find that firms consider both costs and benefits of RPE as an incentive mechanism when deciding to use RPE. Finally, both efficient contracting and rent extraction considerations influence RPE peer selection, with the relative importance of these competing considerations depending on RPE firms’ performance.

I investigate the relation between the structure of CEO compensation and the investment horizons of a firm’s institutional investors and find results consistent with the assertion that short-sighted institutions’ focus on shortterm earnings leads firms to grant more options with higher sensitivity to stock price. In contrast, the percentage holdings of long-term investors are negatively correlated with the use of options and the sensitivity of total CEO equity incentives to changes in stock price. Further results suggest that firms with higher short-term institutional ownership are more concerned about a negative earnings surprise and that when determining annual bonuses, they punish their CEOs more severely. In total, the analyses provide evidence that the investment horizon of institutional investors is associated with firms’ CEO compensation policies. * I thank Christine Botosan, Mary Ellen Carter, John Core, William Cready, Fabrizio Ferri, Rachel Hayes, Lee-Seok Hwang, Li Jin, Ella Mae Matsumura, Martin Wu, and workshop participants at the University of Illinois at UrbanaChampaign, at the University of Utah, at the University of Wisconsin-Madison, at Korea University, at Seoul National University, and at the Korea Advanced Institute of Science and Technology (KAIST) for many helpful comments. Many helpful comments were also received from conference participants at the 4 Asian Corporate Governance Conference in Seoul, South Korea, at the American Accounting Association Annual Meeting, at the Mid-year Meeting of the American Accounting Association’s Management-Accounting Section, and at the 16 Annual Conference on Financial Economics and Accounting (FEA) at the University of North Carolina at Chapel Hill. I gratefully acknowledge financial support from the Institute of Management Research at Seoul National University. This work was also supported by Research Settlement Fund for the new faculty of SNU. ** Assistant Professor, College of Business Administration, Seoul National University, 599 Gwanangno, Gwanak-gu, Seoul, Korea, 151-916 (jshin@snu.ac.kr), Phone: +85-2-880-6940 94 Seoul Journal of Business

This paper empirically examines the effect of competition on the use of customer satisfaction in CEO compensation contracts. Specifically, using American Customer Satisfaction Index (ACSI) scores of firms, we investigate whether customer satisfaction is more closely associated with CEO cash compensation when industry competition increases. Consistent with our prediction, we find that ACSI scores are more closely associated with CEO annual bonus when industry competition becomes greater. Furthermore, we find stronger results when we use industry-adjusted ACSI scores, suggesting that relative customer satisfaction measures are more likely to be used in CEO compensation contracts when industry competition becomes greater. Overall, our results are consistent with competition increasing the usefulness of customer satisfaction measures in compensation contracts.

I examine the relation between the composition of institutional ownership and the structure of CEO compensation. Consistent with my hypotheses, I find that firms with more shares held by institutions with longer investment horizons place more weight on forward-looking performance measure in determining CEO cash compensation. I also find that the percentage holdings by transient institutions, dedicated institutions, investment advisors and pension and endowment are positively associated with the percentage of CEO compensation that is equity-based. These findings continue to hold after I control for potential simultaneity bias. Finally, the results suggest that the boards of firms with higher transient institutional ownership appear to be more concerned about a negative earnings surprise and punish their CEOs more severely in determining annual bonuses. Combined, the analyses provide compelling evidence that the board considers the composition of external shareholders and their likely preferences for executive compensation policies.