Are Top Executives Paid Enough? An Evidence-Based Review

Jacquart, Philippe; Armstrong, J. Scott

doi:10.2139/ssrn.2207600

Cited by 6 publications

(3 citation statements)

References 68 publications

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“…In the cognitive evaluation theory framework, when external mechanisms of control impinge on an individual's sense of autonomy and control, it could thereby decrease his or her internal motivation to behave in ways that the external controls were supposed to ensure (Osterloh, Frost, and Frey, ). Consistent with these ideas, a number of studies in management support the notion that external consequences could potentially reduce individuals' motivation to behave in ways that are consistent with their responsibilities to the firm (e.g., Barkema, ; Jacquart and Armstrong, ). For example, Osterloh and Frey () argued that high levels of extrinsic motivators can curtail employees' intrinsic motivation to engage in organizational citizenship behavior, thus hindering them from transferring tacit knowledge.…”

Section: Theoretical Developmentmentioning

confidence: 93%

External corporate governance and financial fraud: cognitive evaluation theory insights on agency theory prescriptions

Shi

Connelly

Hoskisson

2016

Strategic Management Journal

185

144

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Agency theory suggests that external governance mechanisms (e.g., activist owners, the market for corporate control, securities analysts) can deter managers from acting opportunistically. Using cognitive evaluation theory, we argue that powerful expectations imposed by external governance can impinge on top managers' feelings of autonomy and crowd out their intrinsic motivation, potentially leading to financial fraud. Our findings indicate that external pressure from activist owners, the market for corporate control, and securities analysts increases managers' likelihood of financial fraud. Our study considers external governance from a top manager's perspective and questions one of agency theory's foundational tenets: that external pressure imposed on managers reduces the potential for moral hazard. Managerial SummaryMany of us are familiar with stories about top managers 'cooking the books' in one way or another. As a result, companies and regulatory bodies often implement strict controls to try to prevent financial fraud. However, cognitive evaluation theory describes how those external controls could actually have the opposite of their intended effect because they rob managers of their intrinsic motivation for behaving appropriately. We find this to be the case. When top managers face more stringent external control mechanisms, in the form of activist shareholders, the threat of a takeover, or zealous securities analysts, they are actually more likely to engage in financial misbehavior. Running title: External Corporate Governance and Financial Fraud 3Strategy scholars and policymakers have devoted renewed attention in recent years to 'external' mechanisms of corporate governance, such as the monitoring and control by stakeholders that are not inside the organization. For example, a recent review of this literature seeks to 'bring external corporate governance into the corporate governance puzzle' more fully (Aguilera et al., 2015).Governance research has yielded important insights about these external governance mechanisms (Coffee, 2006), but few have considered their potentially adverse ramifications. Toward this end, we incorporate a behavioral perspective of managers into our understanding of external governance to highlight how the expectations imposed by external governance could impose on managers' motivation, and we thus uncover the potential harm such governance mechanisms might introduce.

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Section: Theoretical Developmentmentioning

confidence: 93%

External corporate governance and financial fraud: cognitive evaluation theory insights on agency theory prescriptions

Shi

Connelly

Hoskisson

2016

Strategic Management Journal

185

144

View full text Add to dashboard Cite

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“…In contrast, analyses of experimental studies have shown that market share objectives are detrimental to the profitability and survival of firms (Armstrong and Collopy, 1996;. Similarly, analyses of non-experimental data by economists have supported the hypothesis that high payments for top corporate executives are beneficial to stockholders whereas experimental studies by organizational behavior researchers concludes that CEOs are currently overpaid such that stockholders' interests are harmed (Jacquart and Armstrong, 2013).…”

Section: Effects On Sciencementioning

confidence: 99%

Guidelines for Science: Evidence and Checklists

Armstrong

Green

2017

SSRN Journal

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Problem: The scientific method is unrivalled as a basis for generating useful knowledge, yet research papers published in management, economics, and other social sciences fields often ignore scientific principles. What, then, can be done to increase the publication of useful scientific papers?Methods: Evidence on researchers' compliance with scientific principles was examined. Guidelines aimed at reducing violations were then derived from established definitions of the scientific method. Findings:Violations of the principles of science are encouraged by: (a) funding for advocacy research; (b) regulations that limit what research is permitted, how it must be designed, and what must be reported; (c) political suppression of scientists' speech; (d) universities' use of invalid criteria to evaluate research-such as grant money and counting of publications without regard to usefulness; (e) journals' use of invalid criteria for deciding which papers to publish-such as the use of statistical significance tests. Solutions:We created a checklist of 24 evidence-based operational guidelines to help researchers comply with scientific principles (valid inputs). Based on the definition of science, we then developed a checklist of seven criteria to evaluate whether a research paper provides useful scientific findings (valuable outputs). That checklist can be used by researchers, funders, courts, legislators, regulators, employers, reviewers, and journals.Originality: This paper provides the first comprehensive evidence-based checklists of operational guidelines for conducting scientific research and for evaluating the scientific quality and usefulness of research efforts.Usefulness: Journals could increase the publication of useful papers by including a section committed to publishing all relevant and useful papers that comply with science. By using the Criteria for Useful Science checklist, those who support science could more effectively evaluate the contributions of scientists. AbstractProblem: The scientific method is unrivalled as a basis for generating useful knowledge, yet research papers published in management, economics, and other social sciences fields often ignore scientific principles. What, then, can be done to increase the publication of useful scientific papers?Methods: Evidence on researchers' compliance with scientific principles was examined. Guidelines aimed at reducing violations were then derived from established definitions of the scientific method.Findings: Violations of the principles of science are encouraged by: (a) funding for advocacy research; (b) regulations that limit what research is permitted, how it must be designed, and what must be reported; (c) political suppression of scientists' speech; (d) universities' use of invalid criteria to evaluate research-such as grant money and counting of publications without regard to usefulness; (e) journals' use of invalid criteria for deciding which papers to publish-such as the use of statistical significance tests.Solutions: We created a chec...

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“…With the exception of Christopher Armstrong, the commentaries are largely sympathetic to the conclusions in Jacquart and Armstrong (2013). The difference arises primarily because Armstrong (2013) focused on non-experimental findings, an issue that we examine in our main paper.…”

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confidence: 99%

The Ombudsman: Is the Evidence Sufficient to Take Action on Executive Pay? Reply to Commentators

Armstrong

Jacquart

2013

Interfaces

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The experimental evidence in this collection of papers is sufficient for organizations to take action-at least with respect to investigating or testing alternative pay schemes. Some organizations have already implemented a number of these procedures. The failure of an organization's directors to follow evidence-based procedures for executive pay might be used as a basis for legal action by shareholders when results are detrimental to a firm.

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Are Top Executives Paid Enough? An Evidence-Based Review

Cited by 6 publications

References 68 publications

External corporate governance and financial fraud: cognitive evaluation theory insights on agency theory prescriptions

External corporate governance and financial fraud: cognitive evaluation theory insights on agency theory prescriptions

Guidelines for Science: Evidence and Checklists

The Ombudsman: Is the Evidence Sufficient to Take Action on Executive Pay? Reply to Commentators

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