Tenure, promotion and executive remuneration

Johnston, James

doi:10.1080/00036840110069967

Cited by 19 publications

(15 citation statements)

References 11 publications

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“…It is more likely, however, that they structured the compensation plan, specifically, the incentive portion of the pay package ineffectively. Such errors are more likely to occur with CEOs having shorter tenure (Johnston, 2002). Inadequate information from the external labor market may also lead to differences in pay structures and levels CEO overpayment and underpayment between internal promotions to and external hires for the CEO position (Johnston, 2002(Johnston, , 2005, which subsequently may be responsible for differences in firm performance.…”

Section: Ceo Underpaymentmentioning

confidence: 99%

CEO overpayment and underpayment: executives, governance and institutions

Hitt

Haynes²

2018

MRJIAM

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Purpose Based on the findings of Aguinis et al. (2018) that only a few executives are properly compensated, the purpose of this paper is to examine potential causes and consequences of CEO overpayment and underpayment. Ineffective compensation of the CEO represents a governance failure by the board of directors. Better understanding the reasons for such failures may help boards to correct their processes and to enact more effective governance. Boards must look beyond the normally constrained focus of agency theory to examine executive characteristics and motivation. Thus, tailoring compensation plans and governance to the executive and organizational context requires attention to a broader set of theoretical notions. Design/methodology/approach Using the Aguinis et al. (2018) work, this paper conceptually identifies and explains the causes and consequences of CEO overpayment and underpayment along with their implications for governance and future research. Findings This paper identifies potential reasons for CEO overpayment and underpayment. For example, in addition to poor hiring decisions and inadequately designed compensation plans, CEO overpayment can occur because of executive hubris and greed. Alternatively, CEO underpayment may occur because of a poorly designed plan, inadequate information about the external labor market and the executive’s interests in non-pecuniary benefits (e.g. socio-emotional wealth, altruism). Without proper monitoring and oversight by the board, firm performance commonly suffers. Originality/value This work extends our understanding of why CEOs may be overpaid (e.g. hubris, greed) and why some executives may accept underpayment (e.g. desire for non-pecuniary benefits from SEW or altruism). This paper explains the consequences of ineffective corporate governance practices that allow inefficient CEO compensation. Finally, this paper explores several contingencies that can affect the governance practices and research needed to enhance our knowledge of this important area.

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Section: Ceo Underpaymentmentioning

confidence: 99%

CEO overpayment and underpayment: executives, governance and institutions

Hitt

Haynes²

2018

MRJIAM

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“…Hartzell and Starks ( 2003)a positive link between Herfindahl index of institutional ownership concentration and pay-for-performance sensitivity of executive compensation. Johnston (2002) positive association between job tenure and promotions and high levels of pay within the top 500 companies.…”

Section: Remunerationmentioning

confidence: 94%

The governance role of shareholders and board of directors on firm performance: an eclectic governance-performance model

Özdemir

Kılınçarslan

2021

IJAIM

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Purpose This study aims to examine the governance role of shareholders and board of directors in determining firm performance through an eclectic multi-theoretic model that integrates structure and incentive functions of agency theory and capability aspect of the resource-based view. Design/methodology/approach The research model uses a large panel data set of 2,364 UK firms over the period 2000–2010 and uses alternative specifications of the model to improve robustness. Findings The results show that the industry experience of major shareholders as a proxy for shareholder capability has a significant positive impact on investee firm performance. The findings also reveal that the lock-in effect of the largest shareholder has a positive impact on performance, whereas the monitoring effectiveness of shareholders is not associated with ownership concentration. Moreover, the results indicate the underlying capabilities of the board of directors and their impact on corporate performance – particularly, the interlocking directorates of executives have a positive impact on firm performance but those of non-executives have a negative one. However, the previous directorship experience of non-executives has a positive impact on performance. Research limitations/implications This study presents a more comprehensive and complete understanding of the governance-performance relationship beyond the narrow or partial explanations provided by single-theory-based studies or those of investigating the effect of various governance tools separately. Practical implications This study provides more insights into the capability dimension of shareholders and the role of incentives in motivating shareholders to exercise stronger oversight on the management rather than just using ownership concentration. Hence, the study can serve as valuable guidance for investors, corporate managers and policymakers. Originality/value To the best of the knowledge, this is the first comprehensive study that uses an eclectic philosophical approach, integrating the agency theory and resource-based view, to not only examine the impact of board of directors but also investigate the governance role of shareholders in modern corporations to understand how shareholders acquire the requisite skills and information, the best practices and processes, and ultimately use the scarce and inimitable resources that help investee firms in improving their performance.

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“…Others only include basic pay and annual bonus (McKnight and Tomkins, 2004;McKnight and Tomkins, 1999;Henderson and Frederickson, 1996). A number of studies only measure cash compensation (Liu and Stark, 2009;Girma et al 2007;Gregg et al 2005;Johnston, 2002;Benito and Conyon, 1999). Cash compensation is a relatively simple measure and easily obtained, but the major drawback is that it does not include the long-term incentive element of executive remuneration.…”

Section: Compensation Measurementmentioning

confidence: 99%

New Evidence of Relative Performance Evaluation (RPE) in UK Chief Executive Realised Incentive Compensation

Farmer,

Alexandrou,

Archbold

2010

SSRN Journal

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In this paper we investigate the association between corporate performance and CEO pay using a panel of 204 large UK companies, between 2003 and 2007. The major and novel contribution of the paper is the focus on payouts from performance-stock option and performance-share plans. We demonstrate that it is crucial to distinguish between the different elements of executive pay and the different performance conditions that attach to those elements if we are to establish a comprehensive understanding of the pay-forperformance relationship. Using fixed-effects regressions, we provide new and convincing evidence that performance-realised short-term pay is determined relative to FTSE-350 market performance and performance-realised long-term pay is determined relative to FTSE-350 sector performance.

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Tenure, promotion and executive remuneration

Cited by 19 publications

References 11 publications

CEO overpayment and underpayment: executives, governance and institutions

CEO overpayment and underpayment: executives, governance and institutions

The governance role of shareholders and board of directors on firm performance: an eclectic governance-performance model

New Evidence of Relative Performance Evaluation (RPE) in UK Chief Executive Realised Incentive Compensation

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