Compensation goals and firm performance

Bennett, Benjamin; Bettis, J. Carr; Gopalan, Radhakrishnan; Milbourn, Todd T.

doi:10.1016/j.jfineco.2017.01.010

Cited by 152 publications

(65 citation statements)

References 23 publications

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“…The intensity and direction of the manipulation depends on where pre-manipulation earnings are relative to the bonus scheme's cap and ‡oor. For cash and equity grants contingent on accounting metrics, Bennett, Bettis, Gopalan, and Milbourn (2017) …nd signi…cant clustering of performance just above both the target and the threshold performance levels. This is consistent with executives taking short-term actions to meet their performance goals, but also going no further to avoid ratcheting up future goals.…”

Section: The E¤ects Of Pay On Manipulation and Short-term Behaviormentioning

confidence: 96%

Executive Compensation: A Survey of Theory and Evidence

Edmans¹,

Gabaix²,

Jenter³

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper reviews the theoretical and empirical literature on executive compensation. We start by presenting data on the level of CEO and other top executive pay over time and across firms, the changing composition of pay; and the strength of executive incentives. We compare pay in U.S. public firms to private and non-U.S. firms. We then critically analyze three non-exclusive explanations for what drives executive pay -shareholder value maximization by boards, rent extraction by executives, and institutional factors such as regulation, taxation, and accounting policy. We confront each hypothesis with the evidence. While shareholder value maximization is consistent with many practices that initially seem inefficient, no single explanation can account for all facts and historical trends; we highlight major gaps for future research. We discuss evidence on the effects of executive pay, highlighting recent identification strategies, and suggest policy implications grounded in theoretical and empirical research. Our survey has two main goals. First, we aim to tightly link the theoretical literature to the empirical evidence, and combine the insights contributed by all three views on the drivers of pay. Second, we aim to provide a user-friendly guide to executive compensation, presenting shareholder value theories using a simple unifying model, and discussing the challenges and methodological issues with empirical research. JEL-Codes: D310, D860, G340, M120. Terms of use: Documents in

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Section: The E¤ects Of Pay On Manipulation and Short-term Behaviormentioning

confidence: 96%

Executive Compensation: A Survey of Theory and Evidence

Edmans¹,

Gabaix²,

Jenter³

2017

SSRN Journal

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“…Second, while concerns have been raised about the use of non‐financial targets in compensation contracts, empirical evidence is limited. In particular, practitioners and regulators have expressed growing discontent about the use of non‐financial targets due to the prevalence of high bonus payments (Bennett, Bettis, Gopalan, & Milbourn, ; Rose, ; Yeates, ). Specifically, the perceived fairness of CEOs’ cash bonus contracts plays a major role surrounding the outrage about executive compensation (Arnold & Grasser, ).…”

Section: Introductionmentioning

confidence: 99%

Powerful CEOs, cash bonus contracts and firm performance

Bachmann

Loyeung

Matolcsy

et al. 2019

Business Fin & Account

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We investigate whether powerful chief executive officers (CEOs) influence the conditions of their cash bonus contracts. Specifically, we examine (i) the association between CEO power and the proportion of ex‐ante cash bonus to base salary (bonus ratio), (ii) the association between CEO power and the relative use of non‐financial to financial performance targets in cash bonus contracts, and (iii) the performance consequences of incorporating non‐financial targets in cash bonus contracts. Results show that powerful CEOs are associated with greater ex‐ante bonus ratios and higher proportions of non‐financial performance targets compared to less powerful CEOs. Furthermore, the use of quantitative and corporate social responsibility (CSR)‐related non‐financial performance targets is positively associated with subsequent firm performance, and the use of undefined non‐financial performance targets is negatively associated with subsequent firm performance. These results are robust to alternative econometric specifications and variable definitions.

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“…The usual control variables are Size , which is the natural logarithm of total assets, and Firm Age , which is calculated by the natural logarithm of the number of years since incorporation. Since firm productivity is affected by firm size and firm operating process, these variables are popular in existing papers in the spirit of firm performance (Bennett, Bettis, Gopalan, & Milbourn, 2017; Frijns et al, 2016; Hauser, 2018). While firm size is significantly associated with their performance because larger firms may suffer more from agency problems due to information asymmetry and incentive conflicts, the firm age tends to have a positive impact on firm performance, as longer operation time indicates better experience in management (Yuan, Xiao, & Zou, 2008).…”

Section: Methodsmentioning

confidence: 99%

Economic uncertainty, ownership structure and small and medium enterprises performance

Doan

Tran

2020

Australian Economic Papers

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This paper investigates the effect of economic uncertainty on the performance of small and medium enterprises (SMEs) over the period 2007-2016. This paper also examines the effects of ownership structure on the relation between Economic Uncertainty and firm performance. We find that an increase in economic uncertainty is negatively associated with the performance of SMEs. Our results also reveal that increased economic uncertainty is associated with a lower performance level for state-owned SMEs, whereas foreign-owned SMEs can better mitigate the negative impact of on their performance than domestic-owned firms.

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Compensation goals and firm performance

Cited by 152 publications

References 23 publications

Executive Compensation: A Survey of Theory and Evidence

Executive Compensation: A Survey of Theory and Evidence

Powerful CEOs, cash bonus contracts and firm performance

Economic uncertainty, ownership structure and small and medium enterprises performance

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