CEO Power, Compensation, and Governance

Albuquerque, Rui; Miao, Jianjun

doi:10.2139/ssrn.922700

Cited by 3 publications

(3 citation statements)

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“…See Albuquerque and Miao (2007) for an alternative model with a similar result. Also note that to the extent that shareholders can use only compensation techniques with some bound on CEO liability in bad states (e.g., when equity-based compensation goes hand in hand with an option program), their welfare loss compared to a case where there are no private benefits for the CEO would be even greater because the CEO would have a more powerful incentive to push for an incompetent director.…”

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confidence: 74%

Board independence and competence

Wagner

2011

Journal of Financial Intermediation

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This paper analyzes board independence and competence as distinct, but inextricably linked aspects of board effectiveness. Competent directors add shareholder value because they have better information about the quality of projects. While a CEO cares about shareholder value, he also wants his board to behave loyally to him by agreeing to projects that give him private benefits. Because many aspects of the CEO-board relationship are not contractible, the paper studies a model of relational contracts, a tool that has hitherto been rarely used in work on corporate governance. The analysis reveals a tradeoff: Inefficient loyalty is endogenously easier to obtain from a less competent board. The implied conflict of interest between shareholders and the CEO is particularly pronounced in difficult times. Fortunately, the tradeoff does not arise with respect to efficient loyalty. Several empirical predictions flow from the model, some of which explain existing empirical facts while others are new. Board independence and competence AbstractThis paper analyzes board independence and competence as distinct, but inextricably linked aspects of board effectiveness. Competent directors add shareholder value because they have better information about the quality of projects. While a CEO cares about shareholder value, he also wants his board to behave loyally to him by agreeing to projects that give him private benefits. Because many aspects of the CEO-board relationship are not contractible, the paper studies a model of relational contracts, a tool that has hitherto been rarely used in work on corporate governance. The analysis reveals a tradeoff: Inefficient loyalty is endogenously easier to obtain from a less competent board. The implied conflict of interest between shareholders and the CEO is particularly pronounced in difficult times. Fortunately, the tradeoff does not arise with respect to efficient loyalty. Several empirical predictions flow from the model, some of which explain existing empirical facts while others are new. While a CEO cares about shareholder value, he also wants his board to behave loyally to him by agreeing to projects that give him private benefits. Because many aspects of the CEO-board relationship are not contractible, the paper studies a model of relational contracts, a tool that has hitherto been rarely used in work on corporate governance. The analysis reveals a tradeoff: Inefficient loyalty is endogenously easier to obtain from a less competent board. The implied conflict of interest between shareholders and the CEO is particularly pronounced in difficult times. Fortunately, the tradeoff does not arise with respect to efficient loyalty. Several empirical predictions flow from the model, some of which explain existing empirical facts while others are new.

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confidence: 74%

Board independence and competence

Wagner

2011

Journal of Financial Intermediation

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“…6. We use the net score of the corporate governance dimension ( COG ), return on assets and firm industry as our control variables. All these control variables have been found to have a certain impact on the CEO's power (Albuquerque & Miao, 2013; Han, Nanda, & Silveri, 2016). …”

Section: Notesmentioning

confidence: 99%

CEO power and CSR: the moderating role of CEO characteristics

Chu

Liu

Chiu

2022

CAFR

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PurposeThe purpose of this study is to examine the moderating role of the characteristics of the chief executive officer (CEO) on the association between CEO power and corporate social responsibility (CSR) performance.Design/methodology/approachThis paper conducts multiple regression analyses to empirically test the proposed hypotheses based on a sample of US-based publicly held companies. The sample period extends from 2000 to 2018. Firm-level CSR ratings are obtained from the Kinder, Lydenberg and Domini (KLD) database (currently known as MSCI ESG STATS). Financial data and CEO data are retrieved from Compustat and ExecuComp databases, respectively. Additional test and robustness analysis are performed.FindingsThis paper shows that firms with more powerful CEOs are less likely to engage in CSR activities. The negative association between CEO power and CSR is found to be exacerbated by CEOs who are younger, more competent and overconfident; however, this negative association is mitigated by CEOs who are female. This paper also finds that gender plays a more important role among CEO characteristics. Collectively, the findings highlight the potential opportunities to better understand the role of various CEO characteristics that jointly affect CSR.Originality/valueFirst, this is the first study providing a comprehensive empirical analysis of how various CEO characteristics jointly affect CSR. Prior studies that focus on standalone CEO characteristics offer an incomplete picture of the relation between a single CEO characteristic and a firm's CSR performance. The current study thus extends the research field by examining the association between seemingly unrelated CEO characteristics and CSR performance. The results also highlight that gender is the critical factor moderating the relationship between CEO power and CSR performance when it is compared with CEO age, ability and overconfidence. Second, the authors add to the literature on employee selection by showing that female CEOs mitigate the negative effect of managerial power on CSR performance. Although the currently available empirical research in management control systems focuses on ex-post analyses of moral hazard mitigation for incumbent employees, both the economics and management literature acknowledge ex ante evidence suggesting that employee selection is even more important. Our findings may provide insight into the selection of CEOs.

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“…While we have built our core hypothesis on the premise that corporate boards preserve their ability to set CEOs’ compensation schemes, we acknowledge that powerful CEOs often exert strong influence over their board in determining the amount and configuration of their pay (e.g. Albuquerque and Miao, 2013; Bebchuk et al, 2002; Bebchuk and Fried, 2003). Hence, CEOs’ power can represent a critical boundary condition for our core argument that CEOs’ historical relative pay affects their overconfidence.…”

Section: Theory and Hypothesesmentioning

confidence: 99%

In retrospect: The influence of chief executive officers’ historical relative pay on overconfidence

Zyung

Shi

2021

Strategic Organization

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This study proposes that chief executive officers who have received over their tenure a greater sum of total compensation relative to the market’s going rate become overconfident. We posit that this happens because historically overpaid chief executive officers perceive greater self-worth to the firm whereby such self-serving attribution inflates their level of self-confidence. We also identify chief executive officer- and firm-level cues that can influence the relationship between chief executive officers’ historical relative pay and their overconfidence, suggesting that chief executive officers’ perceived self-worth is more pronounced when chief executive officers possess less power and when their firm’s performance has improved upon their historical aspirations. Using a sample of 1185 firms and their chief executive officers during the years 2000–2016, we find empirical support for our predictions. Findings from this study contribute to strategic leadership research by highlighting the important role of executives’ compensation in creating overconfidence.

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CEO Power, Compensation, and Governance

Cited by 3 publications

References 58 publications

Board independence and competence

Board independence and competence

CEO power and CSR: the moderating role of CEO characteristics

In retrospect: The influence of chief executive officers’ historical relative pay on overconfidence

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