Is CEO Pay Really Inefficient? A Survey of New Optimal Contracting Theories

Edmans, Alex; Gabaix, Xavier

doi:10.1111/j.1468-036x.2009.00500.x

Cited by 186 publications

(103 citation statements)

References 57 publications

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“…Studies such as those by Edmans andGabaix (2009), Tosi andGomez-Mejia (1994) and Yanadori and Milkovich (2002) narrowed the focus from executive compensation to that of the CEO of a company. The role of the CEO is pivotal in managing the resources of a company, especially in the context of a continuously changing external economic environment, to ensure value creation for shareholders.…”

Section: Literature Reviewmentioning

confidence: 99%

The relationship between remuneration and financial performance for companies listed on the Johannesburg Stock Exchange

Kirsten

Toit

2018

SAJEMS

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Background: The executive directors of a company are the agents of the shareholders and should manage the company in the best interest of the shareholders, not only for personal gain. It is therefore important for companies to ensure that they implement remuneration policies which will result in motivated employees who will execute decisions and actions which are in the best interest of the shareholders. However, it is widely acknowledged that the relationship between company performance and executive remuneration is weak. This implies that executives are still rewarded excessive remuneration regardless of the performance of their companies. Aim: The purpose of this study was to determine whether a relationship exists between the performance-based remuneration of executive directors and the financial performance of South African companies. Setting: The study was conducted in South Africa, specifically on companies listed on the Johannesburg Stock Exchange. Methods: The study design was quantitative and made use of a Pearson correlation and generalised least squares regression with bootstrapping at a 95% confidence interval to analyse the relationship between executive director remuneration and the financial performance of 42 companies in the consumer goods and services industry of the Johannesburg Stock Exchange (JSE) from 2006 to 2015. Results: The study established that the remuneration policies in place for South African executive directors within the consumer goods and services industry seem to be affected by the share price of the company. Conclusion: In the South African environment, executive director remuneration is thus not directly related to profitability or company size, as was the case in some earlier studies. The link between executive director remuneration and share performance may be an indication that remuneration policies are based on the share price and are thus directly connected to the principle of shareholder wealth maximisation.

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Section: Literature Reviewmentioning

confidence: 99%

The relationship between remuneration and financial performance for companies listed on the Johannesburg Stock Exchange

Kirsten

Toit

2018

SAJEMS

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“…A recent survey on the effectiveness of the different corporate governance devices can be found in Edmans and Xavier (2009) and William (2010). The current investigation takes a step forward and analyses Portuguese CEOs earnings and board composition variables, including a quantitative analysis of the individual characteristics of Portuguese listed companies.…”

Section: Italymentioning

confidence: 99%

Executive pay and performance in Portuguese listed companies

Alves¹,

Couto

Francisco

2016

Research in International Business and Finance

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This essay analyses the relationship between corporate governance practices and Chief Executive Officer (CEO) wages from a sample of Portuguese listed companies over the period from 2002-2011. The relationship between CEO total compensation and shareholders return, firm characteristics, CEO characteristics, board of directors and shareholders characteristics is analysed. It is found that firm specific factors accounts for the majority of the variance in total CEO pay, while firm performance accounts for less than 5%. It is also found that the CEO characteristics, board of directors' structures, and shareholders features are related with the CEO pay. The policy implications of these results are then derived.

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“…A long line of research in accounting and finance has examined the design of executive and director compensation plans, with a particular emphasis on the choice between cash and equity incentives (see Murphy, 1999;Core et al, 2003;Edmans and Gabaix, 2009 for reviews).…”

Section: Introductionmentioning

confidence: 99%

Abnormal Accruals in Newly Public Companies: Opportunistic Misreporting or Economic Activity?

2016

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Newly public companies tend to exhibit abnormally high accruals in the year of their initial public offering (IPO). Although the prevailing view in the literature is that these accruals are caused by opportunistic misreporting, we show that these accruals do not appear to benefit managers and instead result from the normal economic activity of newly public companies. In particular, and in contrast to the notion that managers benefit from inflating accruals through an inflated issue price, inflated post-IPO equity values, and increased insider trading profits, we find no evidence of a relation between abnormal accruals and these outcomes. Instead, consistent with these accruals resulting from normal economic activity, we find that these accruals are attributable to the investment of IPO proceeds in working capital and that controlling for the amount of IPO proceeds invested in working capital produces a more powerful accrual-based measure of misreporting. AbstractThis study investigates the determinants and trading performance of outside directors' equity deferrals, which represent the choice to convert part or all of their annual cash compensation into deferred company stock. Using a large sample of S&P1500 firms that allowed directors to defer their cash fees into equity between 1999 and 2009, we find significant associations between equity deferral choices and specific features of the director compensation plans, proxies for directors' outside wealth diversification, and future firm stock market performance. Trading performance analyses indicate that outside directors earn substantial abnormal returns from their deferrals, with a significant proportion of the deferral transactions occurring during blackout periods. These results are consistent with companies structuring director equity deferral plans to circumvent SEC Rule 10b-5's trading restrictions.Key words: outside directors; deferred compensation; insider trading; SEC Rule 10b-5 plans.a We are grateful to Mary Barth (the department editor), an anonymous associate editor, and three anonymous referees for very constructive comments. We also appreciate helpful suggestions from

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Is CEO Pay Really Inefficient? A Survey of New Optimal Contracting Theories

Cited by 186 publications

References 57 publications

The relationship between remuneration and financial performance for companies listed on the Johannesburg Stock Exchange

The relationship between remuneration and financial performance for companies listed on the Johannesburg Stock Exchange

Executive pay and performance in Portuguese listed companies

Abnormal Accruals in Newly Public Companies: Opportunistic Misreporting or Economic Activity?

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