Strategic Managerial Incentive Compensation in Japan: Relative Performance Evaluation and Product Market Collusion

Joh, Sung Wook

doi:10.1162/003465399558094

Cited by 135 publications

(118 citation statements)

References 20 publications

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“…Aggrawal and Samwick (1999) and Joh (1999), for example, argue that firms operating in concentrated industries may limit the use of RPE to avoid aggressive competition or collusive behavior that harms shareholders.…”

Section: Economic Determinants Of Rpe Usementioning

confidence: 99%

Explicit Relative Performance Evaluation in Performance-Vested Equity Grants

2008

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Using data from FTSE 350 firms, we examine factors influencing explicit relative performance evaluation (RPE) conditions in performance-vested equity grants. We provide exploratory evidence on whether the use or characteristics of RPE are associated with efforts to improve incentives by removing common risk, other economic factors discussed in the RPE literature, or external pressure to implement RPE. We find that many of these economic factors, including common risk reduction, are more closely related to specific relative performance conditions than to the firm-level decision to use RPE in some or all of their equity grants. We also find that greater external monitoring by institutional investors or others is associated with plans with tougher overall RPE conditions. The relative performance conditions are binding in most RPE plans, with nearly two-thirds of the grants vesting only partially or not vesting at all. Further, we find evidence that vesting percentages vary in RPE and non-RPE plans.Keywords restricted stock grant, equity plan, dividend playout ratio, stock option grant, compensation risk, RPE, equitybased pay, dividend yield, executive compensation contract, equity incentive, institutional investor, stock return volatility, London stock exchange, stock market performance, share price performance Abstract ______________________________________________________________________________ Using data from FTSE 350 firms, we examine the factors influencing the explicit use of relative performance evaluation (RPE) in performance-vested equity grants, and whether RPE is used to improve incentives or to opportunistically increase vesting and/or placate external parties calling for its use. We find little evidence that the simple decision to use or not use RPE is associated with the economic factors identified in RPE theories. Instead, these factors are associated with specific RPE performance conditions. The relative performance conditions are binding in most RPE plans, with nearly two-thirds of the grants vesting only partially or not vesting at all. However, we find no evidence that vesting percentages are higher in RPE plans than in non-RPE plans, and no evidence that RPE is used opportunistically to increase vesting and compensation.

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Section: Economic Determinants Of Rpe Usementioning

confidence: 99%

Explicit Relative Performance Evaluation in Performance-Vested Equity Grants

2008

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“…Industry characteristics are an important external environmental factor that affects the structure of CEO compensation (Karuna 2007;Joh 1999;Jankiraman, Lambert, and Larcker 1992). However, managers face firm-specific risk in making their decisions.…”

Section: The Firm Level Variation In the Incremental Value Relevance mentioning

confidence: 99%

The Signaling Value of Nonrecurring Items and CEO Market-Based Compensation

Saito

2014

SSRN Journal

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Nonrecurring items are often characterized as transitory and are assumed to be irrelevant for firm valuation. However, I find that industry-level measures of the informativeness of special items and discontinued operations help to revise market assessments of firm value, and these signals are associated with CEO market-based compensation. The results suggest that discontinued operations provide clear signals about the business environment in the sector and reduce goodwill, while special items send noisy signals about future performance and increase goodwill. I also find a significant positive (negative) link between CEO market-based compensation and the signals sent by discontinued operations (special items).

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“…Aggarwal and Samwick (1999b) and Aggarwal and Samwick (1999a) exploit ExecuComp data, restricting them to U.S. firms. Joh (1999) tests RPE on a sample of Japanese firms in the manufacturing sector.…”

Section: Introductionmentioning

confidence: 99%

Preaching Water But Drinking Wine? Relative Performance Evaluation in International Banking

2016

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Relative performance evaluation (RPE) is, at least on paper, enjoying widespread popularity in determining the level of executive compensation. Yet existing empirical evidence of RPE is decidedly mixed. Two principal explanations are held responsible for this discord. A constructional challenge arises from intricacies of identifying the correct peers. And on a simpler note, corporate commitments to RPE could be mere exercises in empty rhetoric. We address both issues and test the use of RPE in a new sample of large international non-U.S. banks. Taken as a whole, the banks in our sample show moderate evidence consistent with RPE. We report stronger evidence once we investigate the subsample of banks that disclose the use of peers in their compensation schemes. This finding lends support to the credibility and thus informational value of RPE commitments. Digging deeper, we conclude that RPE usage is driven by firm size and growth options.

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Strategic Managerial Incentive Compensation in Japan: Relative Performance Evaluation and Product Market Collusion

Cited by 135 publications

References 20 publications

Explicit Relative Performance Evaluation in Performance-Vested Equity Grants

Explicit Relative Performance Evaluation in Performance-Vested Equity Grants

The Signaling Value of Nonrecurring Items and CEO Market-Based Compensation

Preaching Water But Drinking Wine? Relative Performance Evaluation in International Banking

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