Management Fashion Pay-for-Performance for CEOs

Rost, Katja; Osterloh, Margit

doi:10.1007/bf03396781

Cited by 44 publications

(32 citation statements)

References 156 publications

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“…This bonding of interests incentivizes executives to make value-enhancing decisions that benefit shareholders and executives alike. A stylized fact that has emerged from two prior meta-analyses on this topic is that there is a modest but significant positive association between firm performance and executive pay (Rost & Osterloh, 2009;Tosi, Werner, Katz, & Gomez-Mejia, 2000). This indicates that extant compensation practices offer executives only modest incentives to act in the interest of shareholders (Jensen & Murphy, 2010).…”

Section: Introductionmentioning

confidence: 93%

“…Rost and Osterloh (2009), for example, reported an average association between firm performance and executive pay of 0.08, implying that extant variation in corporate performance explains only 0.64% of the variability in executive pay. Similarly, Tosi et al (2000: 328) found that "firm performance is a very weak predictor of CEO pay."…”

Section: Introductionmentioning

confidence: 95%

“…Yet both prior meta-analyses were limited in terms of their scope, and primarily sought to provide an estimate of the associational strength of the relationship between performance and pay (Rost & Osterloh, 2009;Tosi et al, 2000). Rost and Osterloh (2009), for example, reported an average association between firm performance and executive pay of 0.08, implying that extant variation in corporate performance explains only 0.64% of the variability in executive pay.…”

Section: Introductionmentioning

confidence: 98%

See 2 more Smart Citations

An institution-based view of executive compensation: A multilevel meta-analytic test

et al. 2012

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We offer a multilevel meta-analytic study of the firm performance -executive compensation relationship, comprising prior tests derived from 332 primary studies nested in 29 countries. Although our work modestly supports the optimal contracting theory-based expectation that compensation is positively associated with performance, it also reveals considerable cross-country variability in this relationship. We trace this variance to differences in the level of development of the formal and informal institutions protecting investors against managerial overcompensation and underperformance. In terms of intentionally devised and enforced formal institutions, we find significant positive moderating effects on the focal relationship of the rule of law and strength of investor protection variables. For self-enforcing informal institutions, we find similar effects for concentrated ownership and compensationrelated entries in codes of good corporate governance. We also find that formal and informal institutions function in a complementary manner in shaping the performance sensitivity of executive compensation. The focal relationship becomes stronger when concentrated owners have access to well-functioning courts, and when informal norms of good governance are supported by shareholder protection laws. Our study thus suggests that optimal contracting theory must be supplemented with an institution-based view, to account for the conditioning effects of institutions on national contracting environments.

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Section: Introductionmentioning

confidence: 93%

Section: Introductionmentioning

confidence: 95%

Section: Introductionmentioning

confidence: 98%

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An institution-based view of executive compensation: A multilevel meta-analytic test

et al. 2012

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“…Although existing studies have shown that executive compensation, as an important governance mechanism, influences firm strategies and outcomes, most prior studies have mainly examined the performance implications of executive compensation (Gomez-Mejia & Wiseman, 1997;Rost & Osterloh, 2009) and how internationalization affects executive compensation (Oxelheim, & Randøy, 2005;Sanders & Carpenter, 1998). Few studies have explicitly examined the impact of top-executive compensation on OFDI decisions by EE firms.…”

Section: Theoretical Framework and Hypothesesmentioning

confidence: 99%

Top executive compensation, regional institutions and Chinese OFDI

Liu

Chizema

2014

Journal of World Business

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Integrating agency and institutional theories, this paper examines the impact of top-executive compensation and regional institutions on the outward FDI (OFDI) of a sample of Chinese-listed firms. The results show that top-executive cash pay and equity ownership have a positive association with OFDI. Differing from previous studies focusing on cross-country institutional variances, we take variations in within-country institutions into account and find that regional institutions in terms of product markets, factor markets and legal systems play an important role in OFDI and positively moderate the governance role of managerial equity ownership.

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“…This will ensure, in an ideal world, that resources are managed effectively and efficiently at both the organisational and societal levels (Kaen, Kaufman and Zacharias, 1988). Meta-analyses have found mixed results with the general consensus being that there is a significant but weak relationship between CEO pay and firm performance (Dalton, Daily, Certo and Roengpitya, 2003;van Essen, Heugens, Otten and van Oosterhout, 2012;van Essen, Otten and Carberry, 2015;Rost and Osterloh, 2009;Tosi, Werner, Katz and Gomez-Mejia, 2000). Gerhart and Fang (2014, p.50) conclude that, "…it is difficult to envision how individuals, companies, and economies would fare better, on average, by significantly diminishing the role of PFIP [pay for individual performance] in organizations."…”

Section: Traditional Research On Executive Remunerationmentioning

confidence: 99%

Executive remuneration principles, practices and processes: an institutional logics perspective

Crombie

2015

IJCG

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Agency Logic assumes that executives are greedy and opportunistic, which implies that monetary incentives are necessary to ensure they act in the best interests of shareholders; whereas Corporate Logic assumes that executives are trustworthy professionals, which implies that they will act in the best interests of shareholders irrespective of the use of monetary incentives. Prior qualitative research on executive remuneration is reviewed in this paper in order to ascertain how these Logics influence the decision-making of remuneration committees. Given that Agency Logic and Corporate Logic are opposites, there is a tension between the remuneration principles of pay-for-performance and competitive pay. However, Corporate Logic trumps Agency Logic as remuneration committees prioritise competitive pay ahead of other principles, so that talented executives will be retained. The paper also Executive Remuneration Principles, Practices and ProcessesPage 2 discusses a range of other remuneration principles and practices as well as the remuneration processes that have diffused both Logics amongst remuneration committees.

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Management Fashion Pay-for-Performance for CEOs

Cited by 44 publications

References 156 publications

An institution-based view of executive compensation: A multilevel meta-analytic test

An institution-based view of executive compensation: A multilevel meta-analytic test

Top executive compensation, regional institutions and Chinese OFDI

Executive remuneration principles, practices and processes: an institutional logics perspective

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