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Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Relative performance evaluation (RPE) intensifies competitive pressure by tying executive compensation to the profits of rivals. We show that these contracts make loan syndication harder by reducing banks' willingness to participate in loans underwritten by banks named in their RPE contracts. Lead arranger banks, which are more frequently named in RPE, hold larger shares of the loans they syndicate, and their borrowers receive smaller and fewer loans and face higher spreads. Our results highlight the tension between the normal benefits of competition versus the need for cooperation in loan syndication. [ABSTRACT FROM AUTHOR]

Identifying executives' industry affiliation with categorical membership, this study examines how moving to a different industry impacts mobility-compensation outcomes. On the demand side, we propose that audience ambiguity and commitment concerns regarding cross-category moves limit the potential compensation of industry-changing executives. On the supply side, we argue that executives might accept smaller monetary rewards in exchange for acquiring experience in a new domain. Since category status also affects audience evaluations of candidates and candidates' desire to affiliate with a specific social category, we further hypothesize that both demand and supply mechanisms are moderated by status differences between an executive's origin and destination industries. Our analysis of voluntary mobility and compensation patterns of S&P 1500 executives supports these arguments: industry-changing executives realize lower compensation than closely matched within-industry movers. As expected, the compressing effect of changing industry on compensation is contingent upon status differences across industries. Executives who transition to higher-status industries face more stringent compensation discounts, while those moving to lower-status industries experience similar compensation variation as within-industry movers. Our study advances category and status-attainment research by incorporating the influence of industry prestige on career outcomes of cross-category moves, while casting light on the individual consequences of executive mobility. [ABSTRACT FROM AUTHOR]

Recent Delaware Chancery Court decisions that boards are self-interested in setting director compensation have focused scrutiny on the pay-setting process used by corporations. We examine the effect of peer benchmarking on director compensation decisions. Director pay relates positively to peer director pay, and firms paying their directors highly are selected as peers. Moreover, firm performance and board advising performance are positively related to the talent component and are generally unrelated to the self-serving component of the peer pay effect. The evidence indicates that firms use peer benchmarking to justify high compensation mainly to attract talented directors to enhance board quality. [ABSTRACT FROM AUTHOR]

This article examines the role of fair value gains or losses related to Level 3 valuations in CEO cash compensation for U.S. financial firms. Our results show that Level 3 income is compensation-relevant. By separating Level 3 income into unrealized and realized Level 3 income, we find that CEO cash compensation is less sensitive to unrealized than realized Level 3 income, which indicates that compensation committees have a higher concern for the clawback problem associated with unrealized Level 3 income. A further analysis separating Level 3 income into positive and negative components shows that Level 3 losses are more compensation-relevant than Level 3 gains, thereby validating the argument that Level 3 losses are more credible than Level 3 gains. Overall, we find that Level 3 income is relevant for CEO cash compensation and that this phenomenon is mainly driven by its realized and loss components. [ABSTRACT FROM AUTHOR]

The literature provides conflicting arguments and mixed results regarding whether capital markets punish managerial myopia. Using managers cutting research and development (R&D) investments to meet short-term earnings goals as a research setting, this study reveals that capital markets penalize managerial myopia, especially for firms with high investor sophistication. Moreover, the negative market reactions to managerial myopia are weaker for firms with overinvestment problems than for those without such problems. Overall, the results support the notion that security markets are not shortsighted. In further analysis, we document that compensation, especially earnings-based compensation, may cause managers to behave myopically. Our study contributes to the literature, reconciling previously mixed findings by capturing managers' myopic behavior in a more targeted way and showing that markets punish myopic R&D cutting. [ABSTRACT FROM AUTHOR]

We build a novel comprehensive data set of new product trademarks as an output measure of product development innovation. We show that risk-taking incentives in CEO compensation motivate this type of innovation and that this innovation improves firm performance. Using an exogenous shock to executive compensation, we find that reductions in stock option compensation cause reductions in new product development. We also find that firms undertaking new product development experience increases in future cash flow from operations and return on assets. These findings suggest the importance of product development innovation to firms and new trademarks as a novel innovation measure. [ABSTRACT FROM AUTHOR]

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This article uses FAS 123R regulation to examine how reduction in CEO compensation incentives affects managerial "playing it safe" behavior. Using proxies reflecting deliberate managerial efforts to change firm risk, difference-in-difference tests show that affected firms drastically reduce both systematic and idiosyncratic risks, leading to an 8% decline in total firm risk. These reductions in risk are achieved by shifting to safer, but low-Q, segments while closing the riskier ones, without significant changes in investment levels. Our findings suggest that decrease in risk-taking incentives provided by option compensation, when not compensated for by alternative incentives or governance mechanisms, exacerbates risk-related agency problem. [ABSTRACT FROM AUTHOR]

We document that firms that expect their CEOs' compensation to exceed the median CEO compensation of their Institutional Shareholder Services (ISS) peers influence ISS to revise these peer sets. Controlling for changes in firm characteristics that ISS uses to select peers, we find that ISS applies an abnormally high turnover rate in the members of these peer sets and increases the representation of focal firms' chosen peers. This turnover results in increases in the medians of the ISS peers' CEO compensation and size. We find that these firms underperform and conclude that they attempt to camouflage high CEO pay to mitigate outrage costs. [ABSTRACT FROM AUTHOR]

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

There is already a wealth of literature on how the design of salary for technicians affects corporate innovation, but the influential mechanisms of executive incentives on corporate innovation have not received sufficient attention. As a source of motivation for executives to promote innovation, the design of pay gap plays an important role in improving firm's innovation performance. In this research, we attempt to examine the impact of the executive team's internal pay gap on corporate innovation using data from Chinese A-share listed companies from 2016 to 2021. The results are as follows. Firstly, pay gap among executives can significantly enhance a firm's innovation performance. Secondly, the executive pay gap promotes innovation through the stability of executive team members. Thirdly, executive compensation stickiness moderates pay gap and firm's innovation positively. This paper reveals the mechanism by which the executive pay gap affects corporate innovation and suggests that companies should formulate effective compensation incentive mechanisms to stimulate executives' enthusiasm for innovative projects, and strengthen executive support and promotion of corporate innovation. [ABSTRACT FROM AUTHOR]

Question/Issue: This study investigates the role of board‐level employee representatives (BLERs), a common corporate governance practice in Europe, in determining the pay ratio between CEOs and average employees. Research Findings/Insights: Using 15,340 firm‐year observations from 17 European countries between 2001 and 2019, we find that BLERs provide greater bargaining power to the board for dealing with CEOs and use this power to reduce the pay gap between CEOs and employees. Subsample analyses indicate that bargaining power is more apparent when BLERs are more socially connected, have longer tenure, and hold more seats on the board. Theoretical/Academic Implications: This study supports the role of BLERs in providing workers with more bargaining power to create fairer wage distribution in firms. Furthermore, it supports the fair wage–effort theory, indicating a positive effect of lower pay ratios on firm value following the presence of BLERs. Practitioner/Policy Implications: This study demonstrates the effects of a unique corporate governance practice, the presence of BLERs, on companies' wage distribution, with significant policy implications. In particular, the results indicate that when presented with opportunities in affecting companies decision‐making BLERs provide fairer environments for the workers who they represent. [ABSTRACT FROM AUTHOR]

I evaluate the effect of financial statement audits on the governance practices of nonprofit organizations. Using a regression discontinuity design that exploits revenue-based exemption thresholds, I find that financial audits cause organizations to implement governance mechanisms, such as conflict of interest policies, whistleblower policies, and formal approval of the CEO's compensation by a committee. Consistent with these governance practices curtailing managers' private benefits, I document reductions in nepotism and CEO-to-employee pay ratio. The results are more pronounced for organizations (1) whose audit is overseen by an audit committee, (2) that already have an independent board, and (3) that face high charity-level demand for oversight. Collectively, these findings shed light on how financial audits shape the governance practices of small, less sophisticated organizations like nonprofits in ways that go beyond financial statements' direct use in decision-making and contracting. JEL Classifications: M42; G34; M48; L31. [ABSTRACT FROM AUTHOR]

This study examines the risk taking properties associated with incentive plans that use relative performance evaluation, with a focus on the form of payout, whether in cash or shares. By analyzing determinants and consequences of payout form choice, I find that share-based plans offer risk-averse managers weaker incentives to pursue projects with idiosyncratic risk compared with cash plans. This occurs because share plans—unlike cash plans—expose managers to systematic performance trends, as payout values are linked to stock prices. Additionally, I document that the variation in risk taking incentives depends on expected relative performance and the strength of the incentives. Overall, this study's findings suggest that commonly used share-based relative performance plans might not always motivate managers to pursue innovative projects with high idiosyncratic risk when projects with systematic risk are available. Data Availability: All data are available from the sources identified in the text. JEL Classifications: G30; J33; J41; M12; M41. [ABSTRACT FROM AUTHOR]

When determining new equity grants, corporate boards face a tradeoff between the CEO's incentives generated from the grant's duration versus those arising from the convexity of the embedded equity risk. We hypothesize and find that boards lengthen the horizon of new compensation grants in the presence of greater pre-existing compensation sensitivity to stock return volatility (vega). In addition, consistent with our hypothesis, we find stronger results in the presence of greater left-tail risk. Further, employing two exogenous shocks to left-tail risk, we provide evidence consistent with our hypothesis that grant horizons are related to risk incentives. Our analysis of the interaction of these two incentive mechanisms provides new insights on compensation contracting. JEL Classifications: J33; M52. [ABSTRACT FROM AUTHOR]

We test whether industry tournament incentives (ITI) for CEOs influence debt contracting. Measuring ITI as the pay gap between a CEO and the highest-paid industry peer, we find that firm credit ratings decrease and loan spreads and the tightness of non-price loan features increase with the industry pay gap. We find that a history of income increasing discretionary accruals and accounting restatements accentuate the influence of ITI on the cost of loans, while more restrictive loan contracts, greater alignment of managerial and creditor incentives, and higher default risk attenuate the influence of ITI on the cost of loans. [ABSTRACT FROM AUTHOR]

Purpose: This paper studies the relationship between CEO pay-performance sensitivity and CEO pay for luck as well as the asymmetric benchmarking of CEO pay in which good luck is rewarded but bad luck is not penalized symmetrically. We further explore the impact of the regulatory changes on executive compensation taking effect in the 2000s on CEO pay for luck and asymmetry. Design/methodology/approach: In this study, we examine the relationship between CEO pay-performance sensitivity and CEO pay for luck and the asymmetric benchmarking of CEO compensation. The sample consists of DJIA component companies over a 71-year period from 1950 to 2020. CEO pay-performance sensitivity is measured by both delta and Jensen-Murphy pay-performance sensitivity. Findings: We find that an increase in CEO pay-performance sensitivity as measured by both delta and Jensen-Murphy pay-performance sensitivity leads to an increase in the degree of CEO pay for luck but tends to reduce the level of CEO pay for luck asymmetry. In addition, we find that the major pay-related regulatory changes in recent years have mitigated the degree of CEO pay for luck and pay asymmetry, in which CEO pay structure and the associated CEO pay-performance sensitivity are major mechanisms through which the regulatory changes take effect. Research limitations/implications: Our findings provide empirical evidence supporting the argument that both optimal contracting and rent extraction should be considered as important determinants of CEO compensation. Practical implications: When a firm designs the pay packages for its CEO to align CEO wealth to firm performance, CEO pay-performance sensitivity is expected to improve. However, the improved CEO PPS can also lead to an increased CEO pay for non-performance (Luck), which is an undesired outcome from the shareholder view. Therefore, a firm should thoroughly consider various advantages and disadvantages when compensating its top executives. Third, pay-related regulations have indeed achieved some intended outcomes such as the diminished pay for luck and asymmetry, but they also exacerbated the positive relationship between CEO pay-performance sensitivity and the asymmetric benchmarking of CEO pay. It seems that executive pay-related regulations cannot achieve perfect outcomes without side effects. Continuous reforms and regulations on corporate governance should be a dynamic process under various changing situations. Originality/value: This study contributes to the literature on executive pay for luck and asymmetry in several ways. First, our study is among the few studies empirically testing the relationship between CEO pay-performance sensitivity and pay for luck and asymmetry. We find that CEO pay-performance sensitivity tends to increase the degree of CEO pay for luck but reduce the level of asymmetric benchmarking of CEO pay. These findings partly support the rent extraction theory grounded on the managerial power hypothesis and partly support the optimal contracting theory. Our findings confirm that the optimal contracting theory and the rent extraction theory are both important for explaining the practices and historical trends of CEO compensation. [ABSTRACT FROM AUTHOR]

This study investigates the influence of boardroom gender diversity (BGD) on the adoption of Environmental, Social, and Governance (ESG) metrics in executive compensation, a concept emerging from the stakeholderism debate. Prior research has focused on the impact of BGD on traditional compensation metrics, but the role of BGD in ESG‐linked compensation remains underexplored. Our research fills this gap by examining whether BGD contributes to the incorporation of ESG considerations in executive pay structures. Additionally, we analyze how board members' external affiliations might moderate this relationship, considering that these affiliations can provide diverse perspectives and insights into ESG issues. Using data from 14 countries, our findings reveal a positive and significant association between BGD and ESG metrics in executive compensation, suggesting that women directors significantly influence the integration of sustainability and ethical considerations in corporate strategic planning. Moreover, the impact of BGD on ESG‐linked compensation is found to be more pronounced with higher levels of board members' affiliations. Our results are robust to alternate estimation techniques such as propensity score matching (PSM) and generalized methods of moments (GMM). Our study contributes to the existing literature on gender diversity, corporate governance, and sustainability, offering insights for policymakers and corporate boards on aligning corporate strategies with ESG goals. [ABSTRACT FROM AUTHOR]

This article examines the impact of sustainability-oriented governance factors on companies reporting on due diligence requirements of conflict minerals (DDRCM). We use the rating scores that are assigned by the Responsible Sourcing Network (RSN) on a sample of multinational companies between 2015 and 2019. We consider whether the existence and type of an independent external audit, the existence of sustainability reports to communicate a firm's message, the inclusion of sustainability-related targets in executive compensation contracts, and the existence of board-level sustainability committees are associated with DDRCM reporting. We find that the combined effect of sustainability-oriented governance factors is associated with higher DDRCM reporting suggesting that sustainability governance plays an effective role in shaping the corporate response to conflict mineral risks. We also find that effective boards moderate the association between sustainability governance and DDRCM reporting suggesting that effective boards can substitute for the resources that are required for sustainability governance. [ABSTRACT FROM AUTHOR]

Relations between REIT CEO compensation, firm stock performance and risk, after FASB accounting changes and additional SEC compensation disclosure requirements in 2006, are examined. Total compensation becomes more weighted to bonus payments and stock grants and away from options and salary. The majority of REIT CEO compensation comes from bonus payments and stock grants. REIT CEO compensation is found to be positively correlated with lagged firm stock performance, but not lagged firm risk measures. A new metric related to the REIT dividend requirement, dividends paid to CEOs from share ownership, is positively related to CEO total compensation, and the positive relation is driven by a strong association between cash dividends to CEOs and their equity-based compensation. These findings suggest that REIT CEOs trade-off certainty in cash compensation for equity-based wealth and related cash flows. Most important, our results suggest that REIT CEOs are paid for performance and are less likely to earn windfalls that have been associated with the use of options and mis-priced firm risk in non-REIT firms. [ABSTRACT FROM AUTHOR]

The objective of this study is to investigate the impact of short-selling mechanisms on management net tone. By utilising data from A-share listed companies on the Shanghai and Shenzhen stock exchanges between 2007 and 2017, the analysis employs a difference-in-differences model which reveals that short-selling mechanisms significantly reduce management net tone. The conclusions drawn from this study remain robust after a series of stringent tests. Further analysis reveals that in non-state-owned enterprises, firms with lower information transparency, and those operating within superior market and legal environments, short-selling mechanisms effectively suppress management tone inflation. Additionally, the study identifies analyst coverage and executive compensation as mediating channels through which short-selling mechanisms influence management net tone. This research provides valuable theoretical insights for regulatory bodies concerning the disclosure of non-financial information by listed companies. [ABSTRACT FROM AUTHOR]

This study examines the relationship between CEO compensation schemes and ESG greenwashing behavior in Chinese listed firms during the period 2013–2022. We find that a CEO's cash (equity) compensation has a significantly positive (negative) correlation with corporate ESG greenwashing behavior. From mechanism analysis, consistent with the agency problem view, firms engage in more severe ESG greenwashing behavior under a higher proportion of cash in the CEO compensation structure. Such distortion behavior is mitigated by higher internal control quality in firms having an equity incentive for their CEO under the convergence of interest viewpoint. Additional analysis reveals that corporates audited by large accounting firms and those with more media coverage exacerbate the positive correlation between CEO cash compensation and ESG greenwashing behavior, while government environmental regulations reinforce the inhibitory effect of CEO equity compensation on ESG greenwashing. Our results imply that different CEO compensation schemes can have opposite effects on limiting firms' ESG greenwashing behavior in the Chinese context. Furthermore, we highlight that the question of form over substance principle to certain external governance mechanisms, leading CEO to exacerbate impression management of ESG disclosure. [ABSTRACT FROM AUTHOR]

Reasonable compensation contract arrangements have long been an essential means of promoting the hard work of executives and enhancing corporate performance. While internal pay disparity and its incentive effects have garnered widespread attention, few studies have examined the impact of executive external pay disparity on enterprise innovation. Using panel data from Chinese mixed-ownership listed companies spanning from 2013 to 2020, this study explores how executive external pay disparity affects enterprise innovation. Our findings demonstrate that enterprise innovation is positively influenced by the disparity in executive external pay. This facilitating role is further strengthened in enterprises with a high level of board governance. Additionally, the benefits of executive external pay disparity for innovation are particularly evident in general commercial mixed-ownership enterprises. Mechanism tests reveal that executive external pay disparity plays a pivotal role in enhancing enterprise innovation by increasing corporate risk-taking, ultimately leading to improved enterprise value. This study not only enriches our understanding of the influencing factors behind enterprise innovation from a new perspective but also holds significant implications for deepening the reform of mixed ownership and promoting enterprise innovation through the optimization of compensation contract arrangements. [ABSTRACT FROM AUTHOR]

This study shows that executive stock options are an effective compensation policy that takes corporate investment to the optimal level in the presence of unpredictable risk from economic policy uncertainty (EPU). We aim to explore whether stock options provide incentives for executives to choose a project that the optimal investment needs to be implemented. We use delta and vega as a proxy for price sensitivity and compensation sensitivity, respectively, to examine the interaction between executive stock options portfolio and EPU. We use delta for price sensitivity and vega for compensation sensitivity, respectively, to examine the interaction between executive stock options portfolio and EPU. Our analysis shows that a well-designed compensation structure motivates executives to maintain the optimal investment level when faced with unpredictable risks. [ABSTRACT FROM AUTHOR]

We study the effects of family control on CEO pay from the perspective of behavioral agency model (BAM), with particular focus on family firm's generational stage and CEO family ties. Using a panel of Australian listed firms, we find that family firms present lower total and variable CEO pay, showing also less pay disparity between the CEO and other top executives. We also find that multi-generational family firms and those run by non-family CEOs offer higher total and variable CEO pay and present high pay disparity. The BAM and family's aversion to socioemotional wealth loss can explain the effects of family control based on the pursuing of non-financial family goals. The decline of these goals derived from the aging of the firm and the hiring of external CEOs shape family control and should be considered in the design of executive compensation policies and by external parties when assessing their suitability. JEL CLASSIFICATION: G30; G32; G34; G38 [ABSTRACT FROM AUTHOR]

Copyright of Contaduría y Administración is the property of Facultad de Contaduria y Administracion-Universidad Nacional Autonoma de Mexico and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This study seeks to assess whether CEO Compensation, Managerial Ability, and Tenure individually have a positive and significant impact on the Debt-to-Equity Ratio. Additionally, it aims to determine whether CEO Compensation, Managerial Ability, Tenure, and the Debt-to-Equity Ratio significantly and positively influence Return on Assets. The study employs a quantitative path analysis methodology using Eviews version 12 statistical software. Data comprises secondary sources from annual financial reports available on the Indonesia Stock Exchange website, covering a 5-year span (2018-2022) across 25 companies in the Consumer Non-Cyclicals sector listed on the IDX, resulting in 125 observations. The findings reveal that (1) CEO Compensation does not positively affect the Debt-to-Equity Ratio, (2) CEO Managerial Ability negatively impacts the Debt-to-Equity Ratio, (3) CEO Tenure does not negatively affect the Debt-to-Equity Ratio, (4) CEO Compensation does not positively influence Return on Assets, (5) CEO Managerial Ability does not positively impact Return on Assets, (6) CEO Tenure does not have a positive effect on Return on Assets, (7) the Debt-to-Equity Ratio negatively impacts Return on Assets, and (8) the Debt-to-Equity Ratio does not mediate the effect of CEO Tenure on Return on Assets. [ABSTRACT FROM AUTHOR]

In recent years, companies’ disclosure of information regarding their carbon emissions has evolved rapidly. However, an important question remains whether carbon emissions disclosure has any influence on climate change risk reporting. Previous literature has not focused on the more pressing question of how changes in carbon performance may lead to subsequent changes in climate change disclosure. This study examines how sustainable board and the use of sustainability targets in executive compensation can moderate the relationship between climate change disclosure and carbon performance. Following a mixed theoretical framework focusing on upper echelon theory, we revisit the relationship between climate change reporting and carbon performance. The Leadership Index is used to measure the level of climate change disclosure, and carbon performance is based on both the carbon intensity of emissions and the mitigation of carbon emissions. From an international sample of listed companies, we use an ordered logit regression methodology. Our study contributes to the growing literature on sustainable governance and the effect of Chief Sustainability Officer serving on the board of directors on climate change reporting. The most important idea is to know which sustainable board mechanisms should be responsible for improving climate reporting. [ABSTRACT FROM AUTHOR]

There are ongoing debates globally regarding excessive executive compensation, the perceived weak link between pay and performance, and the widening inequality gap. The South African corporate governance code King IV's Principle 14 addresses the need for fair, responsible, and transparent remuneration. At the same time, the newly enacted Companies Amendment Act No. 16 of 2024 in South Africa emphasizes transparency in compensation, shareholder voting, and responding to shareholder feedback. This study conducts a systematic literature review of 30 articles on the transparency of executive remuneration disclosures and their determinants by analyzing Scopus-indexed articles published between 2010 and 2023, selected through specific keyword searches. The findings suggest an increasing focus on research regarding the disclosure of executive compensation, predominantly conducted in the Global North and primarily framed through agency theory. Studies exploring the factors influencing executive remuneration and the relationship between pay and performance are prevalent, with mixed results generally indicating a positive connection. Firm size emerges as a key factor in transparency, and many studies employ binary scoring to evaluate whether executive compensation disclosure is present. This paper provides valuable insights for investors, analysts, and policymakers and adds to the current understanding of executive remuneration transparency. [ABSTRACT FROM AUTHOR]

We investigate how executive pay disparity affects insider profits around earnings news. Our findings reveal that high pay disparity is linked to higher abnormal returns from insider purchases before positive news, suggesting insiders exploit good news for greater gains. Conversely, it is associated with lower abnormal returns from insider sales before negative news, indicating less benefit from such sales. These insights highlight the influence of pay disparity on insider trading and underscore the importance of understanding this dynamic to improve decision-making and reduce misuse of insider information. [ABSTRACT FROM AUTHOR]

In this study, we examine the impact of social capital surrounding firms' headquarters on their chief executive officers (CEOs)' pay duration, reflected by the vesting periods of the short‐term and long‐term components in their annual compensation. Our analysis reveals that CEO pay duration increases with the level of social capital in the county in which firms are headquartered. We further find that this effect is more pronounced when CEOs are more likely to be short‐term‐oriented, suggesting that under the influence of the local community's social capital, the board of directors uses longer pay duration to better align CEOs' interests with long‐term shareholder value. Our results are robust to a variety of additional tests and a smaller sample of firms that had relocated their headquarters to communities with a different level of social capital. Overall, our findings are consistent with the view that social capital incentivizes firms to be long‐term‐oriented and refrain from short‐term opportunistic activities, and this lengthens CEO pay duration. [ABSTRACT FROM AUTHOR]

The Dodd–Fank Act mandated shareholder votes on executive's change‐in‐control (golden parachute) payments at the time the firm is sold. We study bid premiums surrounding the introduction of the vote and find that they are lower in the post‐period. Moreover, there is a positive association between the relative size of parachute payments and premiums, particularly after the parachute vote was required. In contrast, we observe no association between premiums and parachute features questioned by many shareholders. Additionally, we find lower voting support for parachutes with features that are (i) of concern to shareholders, (ii) amended in the lead‐up to the vote and (iii) identified as problematic in proxy advisor analyst reports. However, we find little evidence that directors overseeing payments with opposition from shareholders or a leading proxy advisor are penalized with lost board seats, fewer key board committee memberships or increased shareholder opposition in subsequent director elections at other firms. Overall, our findings suggest that the parachute vote requirement is too little too late. [ABSTRACT FROM AUTHOR]

This paper examines the risk incentives of traditional and non-traditional call options in the context of a levered firm where managers under-invest due to risk aversion. Our results contrast with those presented in the literature inasmuch as lookback calls do not always induce higher risk taking than regular calls, and managers always prefer a combination of regular calls and shares of stock in their compensation package as opposed to only company shares. We also show that Asian options outperform both plain-vanilla and other nonstandard options in inducing higher risk taking and, thereby, are a superior remedy for alleviating the agency costs of deviating from the optimal volatility level. Finally, we shed new insights that better clarify the incorrect arguments found in the literature regarding the delta of regular and lookback calls. [ABSTRACT FROM AUTHOR]

Purpose: Clawback provisions entitle shareholders to recover previously awarded incentive compensation after the discovery of accounting manipulation or misconduct. The author evaluates the impact of clawback enforcement heterogeneity on the horizon of executive compensation. Design/methodology/approach: The author provides empirical tests to evaluate the impact of clawback adoption decisions. The author deals with the endogeneity of clawback adoption decisions through an instrumental variables strategy that exploits the transmission of governance choices within firms' networks. Findings: While the author finds that clawback adoption reduces the frequency of accounting manipulation, this reduction is accompanied by heterogeneous effects on the horizon of executive pay across firms. Clawback adopters with high director independence, high leverage, high managerial termination payments and low executive ownership tilt their compensation toward the short-term. Practical implications: The results, robust to alternative specifications, suggest that clawbacks allow strong-enforcement firms to tilt compensation toward the short-term, offsetting some of the direct manipulation disincentives generated by the clawback. The stock market reacts positively to the adoption in firms with weak enforcement, suggesting that clawbacks significantly reduce the managers' rent-extraction capacity. Originality/value: Using a novel empirical and identification approach, the results suggest that clawbacks allow strong-enforcement firms to tilt compensation toward the short-term, offsetting some of the direct manipulation disincentives generated by the clawback. [ABSTRACT FROM AUTHOR]

Purpose: This paper aims to examine the effect of executive compensation incentives, specifically CEO inside debt holdings, on the choice of industry specialist auditor. Design/methodology/approach: High inside debt holdings are expected to constrain excessive managerial risk-taking and align the interests of managers and outside debtholders. The authors hypothesize that reduced debtholders' expropriation concerns will decrease the demand for high audit quality, measured by industry specialization. The authors investigate a sample of US firms from 2006 to 2018 using OLS regression and use CEO relative leverage to proxy for CEO inside debt holdings. The authors conduct an additional two-stage least squares regression analysis to address potential endogeneity issues. Findings: The paper finds that firms with higher levels of CEO inside debt tend not to appoint an auditor with industry specialization. This result is consistent with the notion that inside debt mitigates agency conflicts between managers and debtholders, reducing the demand for high-quality audits as a monitoring mechanism. The paper also finds that among firms which are excessively leveraged, those with higher levels of CEO inside debt tend to appoint an industry specialist auditor. Originality/value: The findings contribute to the literature on agency cost and auditor choice by demonstrating that CEO inside debt has both substitutive and complementary effects on demand for industry specialist auditors. [ABSTRACT FROM AUTHOR]

The objective of this research is to examine whether and how enterprises adjust their corporate social responsibility (CSR) activities in response to top executives' local tournament incentives. The findings provide evidence to support the claim that local compensation gaps encourage top executives to reduce their CSR performance; furthermore, they indicate that this reduction is accomplished mainly through the CSR categories of diversity, community, the environment and product. The enforceability of noncompete agreements (NCAs) is examined, and the negative relationship between local compensation gaps and CSR is documented to be weaker in states that feature stronger enforcement of NCAs, which constrains labour mobility and imposes turnover costs. The findings of this research are robust to concerns regarding endogeneity and reverse causality. [ABSTRACT FROM AUTHOR]

Executive remuneration has traditionally attracted the attention of scholars, regulators, and public opinion. In recent years, especially after epochal corporate scandals and financial crises, executive remuneration has polarized the political debate, leading to consequences for the way it was theorized, structured, and ultimately quantified within corporations. This article specifically examines the relationship between executive compensation and sustainability, with a focus on the influence of Environmental, Social, Governance (ESG) metrics in the context of European companies. The article provides a qualitative analysis of the historical debate on executive remuneration and considers the different theories informing corporate law. Furthermore, it offers a qualitative and empirical analysis of how executive compensation policies of the 300 largest companies by target capitalization in Europe – listed in the FTSE EuroFirst300 – take ESG parameters into account. Lastly, this article presents some policy considerations, particularly questioning whether executive remuneration is the right incentive for ESG compliance, and emphasizing the importance of a shift in corporate culture to effectively make corporate practices more sustainable. [ABSTRACT FROM AUTHOR]

This study conducts an empirical analysis of the effect of economic policy uncertainty on executive compensation stickiness and the underlying mechanism using data on A-share main board listed companies from 2007 to 2021. This study finds that economic policy uncertainty positively relates to executive compensation stickiness. Tolerance, information, and supervision effects are important mechanisms of this impact. Further studies show that the effect of economic policy uncertainty on executive compensation stickiness is also significantly affected by political uncertainty, industry competition, nature of property rights, executive career concerns, and management power. [ABSTRACT FROM AUTHOR]

The theory of compensation incentive suggests that matching management positions with appropriate compensation is conducive to improving the efficiency of corporate production and operations. However, within the backdrop of China's institutional framework, the pay restriction policy for executives of state-owned enterprises (SOEs) has led to a phenomenon known as pay-position upside down, which goes against the compensation incentive theory. This paper explores how this phenomenon affects financial investment from the standpoint of the profit-seeking incentive of pursuing political promotions and the rational economic man's motivation to flee accountability for performance evaluations. Our difference-in-differences estimations show that the CEO pay-position upside down has a positive effect on financial investment. Mechanistic analyses show that this link is strengthened by SOEs undergoing mixed reform, SOEs in the provinces inspected by the Central Inspection Team, and SOEs in situations where CEOs are younger and hold shorter tenures. Additionally, the central SOEs' inclination to pursue political promotions and handle performance reviews results in increased investment in financial assets. The findings of this study offer a new perspective on how to use compensation contracts for management incentives effectively and provide valuable insights into the rational arrangement of compensation and positions within state-owned enterprises. [ABSTRACT FROM AUTHOR]

Purpose: This study aims to analyse the motivations and underlying assumptions of decision makers driving the adoption of sustainability-oriented targets in executive compensation (SCTs) to better understand SCTs' impact on sustainability performance. Design/methodology/approach: Through a qualitative approach, 15 in-depth interviews are conducted in a two-tier governance setting. Participants include management and supervisory board members, compensation consultants and other stakeholders involved in proxy voting. Findings: SCT implementation is primarily determined by meeting shareholders' expectations rather than those of other stakeholders. Decision makers react in a differentiated way to increased expectations by implementing either primarily symbolic or substantive measures and encounter different implementation challenges like insufficient data quality and a lack of experience within supervisory boards, both of which potentially contribute to decoupling. Research limitations/implications: The study offers valuable insights for companies in designing SCTs and emphasises the significance of addressing decoupling to effectively enhance sustainability performance through SCTs and provides a foundation for future studies aimed at analysing this phenomenon. Originality/value: Using a neo-institutional theory lens, this study marks one of the first interview-based investigations to distinguish between symbolic and substantial SCTs. It delves deeply into the role of decoupling and the associated challenges, offering fresh perspectives within the under-researched framework of a two-tier corporate governance structure. Moreover, this study aims to meticulously capture the real-world design practices and implementation processes of SCTs through experts, an aspect that was emphasised as a limitation in previous studies. [ABSTRACT FROM AUTHOR]

The present study investigates whether CEO initial tenure is essential in establishing CSR practices. In further analysis, we contemplate the consequences of CEO's initial service tenure CSR engagement. Our analysis is based on the sample of Chinese-listed firms from 2009 to 2019 periods—the research study used a fixed-effect panel approach for analyzing the dataset. A two-stage-least square test is then used to address the endogeneity problem. The study's findings manifest that CEO tenure is negatively and significantly associated with CSR practices. In an additional analysis, the study reveals that CEOs have more significant career concerns in the initial service period than afterward in their later service period. Therefore, CSR practices increase in CEO's initial service tenure. Moreover, the study documented that the CEO's CSR engagement in their initial tenure has a positive-and-significant association with their compensation package and lessens the risk of dismissals. Finally, we demonstrate that CEOs concentrate more on CSR practices in coastal regions of China. This research is helpful for policymakers in devising CSR policies and making corporate governance decisions. [ABSTRACT FROM AUTHOR]

This research examines how corporate governance moderates the impact of financial derivatives, executive pay, executive traits, and family ownership on tax aggressiveness in manufacturing firms listed on the Indonesia Stock Exchange between 2021 and 2023. Independent commissioners are used as a proxy for corporate governance. A total of 86 companies were included in the study using purposive sampling. The data analysis method employed was moderated regression analysis (MRA). The findings indicated that tax aggressiveness was impacted by financial derivatives, executive compensation, and executive behaviour but not by family ownership. These findings suggest that the level of family ownership does not dictate the degree of tax avoidance. Corporate governance as a moderating factor can influence executive compensation and executive behaviour but does not influence financial derivatives and family ownership concerning tax aggressiveness. [ABSTRACT FROM AUTHOR]

This study examines the performance target response to CEO overconfidence. Using unique handcollected data on the annual bonus targets of Standard & Poor's (S&P) 1500 firms, we find that boards ratchet targets more aggressively and apply greater ratcheting asymmetry for overconfident CEOs than for non-overconfident CEOs. These findings are robust to a battery of sensitivity tests. We also provide evidence that the increase in target ratcheting for overconfident CEOs is particularly more pronounced in firms with strong monitoring environments. Collectively, our findings suggest that boards actively consider CEOs' overconfidence when setting performance targets, providing new insight into the importance of CEOs' personal traits with respect to the incentive effects of performance target revisions. [ABSTRACT FROM AUTHOR]

We estimate the pay premium associated with CEO incentive compensation. Using explicit detailed U.S. CEO compensation contract data and simulation analysis, we find that CEOs with riskier pay packages receive a premium for pay at risk that represents 13.5 percent of total pay. The premium is positively correlated with proxies for CEO risk aversion, but implied risk aversion values suggest that the premium is economically smaller than suggested by prior studies. We perform our tests using a variety of proxies to measure the variance of pay and find consistent evidence of economically small pay risk premiums. These results are consistent with recent findings suggesting that risk may have a more limited influence over the level of pay than previously thought. [ABSTRACT FROM AUTHOR]

Equity compensation is granted out of an equity incentive plan that must be approved by shareholders and cedes discretion over equity grants to boards of directors. We predict and find that equity plan proposals give boards more discretion over grants when the firm faces greater labor market forces and more volatile stock returns. When examining votes, we find that shareholders are less likely to support plans with abnormal discretion. We also find that boards with more discretion grant more equity in response to stock price declines. Lastly, we find that boards request additional shares when their ability to grant equity is more constrained by a smaller pool of available shares, and when they plan to increase equity grants. Overall our findings illuminate how firms balance needs to respond to labor market pressure and volatile operating environments against shareholder governance and oversight of equity compensation. [ABSTRACT FROM AUTHOR]