Equity-incentive compensation and payout policy in Europe

Burns, Natasha; McTier, Brian; Minnick, Kristina

doi:10.1016/j.jcorpfin.2014.10.019

Cited by 47 publications

(64 citation statements)

References 43 publications

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“…Firms with greater risk tend to pay lower cash dividends but risk has a significantly positive impact on stock dividends, consistent with Kahle's (2002) conclusion that riskier firms tend to favor repurchases over cash dividends as a way of paying out free cash flow to investors. In our results, larger firms are less likely pay cash and stock dividends, a finding inconsistent with both Fama & French (2001) and Burns et al (2015). This may stem from differences between capital market participants in China and those in more advanced economies, like the US and OECD countries; further research will be necessary for a deeper understanding of this point.…”

Section: [Insert Table 5 Around Here]contrasting

confidence: 70%

Equity incentive schemes, investor protection and corporate performance

Alexiou

2019

CFRI

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Purpose On the basis of corporate governance and agency cost theory, using the fifth sub-indicator of Fan et al. China Marketization Index as the regional investor protection index (IPI), the purpose of this paper is to explore the impact of equity incentives and regional investor protection on corporate payout policies and corporate performance. Design/methodology/approach This paper establishes ordinary least squares regression model to examine interactions between the effects of equity incentives and regional investor protection upon firms’ dividend payouts. In addition, the authors also explore whether the joint effects on payouts are altered in the presence of growth opportunities, and investigate the effects of interactions between equity incentives and regional investor protection on corporate performance. Findings The authors observe that firm managers appear to abuse equity incentives by increasing dividend payouts. However, regional investor protection can potentially restrain such behavior. The restraining effect depends on the firms’ growth opportunities, on the basis of which the effect on cash (stock) dividends is found to be weaker (stronger) in high-growth firms – and stronger (weaker) in low-growth firms. Further evidence indicates that the restraining effect of regional investor protection on selfish dividend-related behavior encouraged by equity incentives may also prove valuable in encouraging exploitation of these incentives so as to enhance corporate performance. Practical implications Since reforming investor protection laws and improving judicial quality are difficult and lengthy at a country level. Improving regional levels of investor protection, however, seems more feasible and effective. Through measures encouraging the development of intermediaries, increases in the number of lawyers – all of which seem likely to constrain behavior harmful to the interests of investors – the provincial administrations can reasonably expect to contribute toward improvements in the performance of firms and the development of the economy in their region. This paper provides encouragement to regional policy makers in China and in other developing countries. Originality/value This paper uses a regional index of investor protection to study the impact on corporate dividends and performance, in contrast with most previous studies, which have examined these issues at country or individual firm levels. The use of a regional-level investor IPI in this paper therefore fills a gap by coming in between the country- and firm-level indicators typically used in previous research, thus providing a new perspective on investor protection issues.

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Section: [Insert Table 5 Around Here]contrasting

confidence: 70%

Equity incentive schemes, investor protection and corporate performance

Alexiou

2019

CFRI

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“…They find that Finnish companies with more executive options pay higher, not lower, dividends if their options are dividendprotected. Burns et al (2013) investigate the relationship between the equity-based compensation granted in a given year and payout policy in a sample of European firms. They limit their definition of executives' incentives to the equity-based compensation granted to CEOs in a given year.…”

Section: Executive Stock Options and Cash Dividendsmentioning

confidence: 99%

Executive incentives and payout policy: Empirical evidence from Europe

Cesari¹,

Ozkan

2015

Journal of Banking & Finance

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General rightsThis document is made available in accordance with publisher policies. Please cite only the published version using the reference above. This version: November 6 th , 2014 ______________________________________________________________________________ AbstractWe investigate how corporate payout policy is influenced by executive incentives, i.e. stock and option holdings, stock options delta, and stock-based pay-performance sensitivity for 1,650 publicly listed firms from the UK, Germany, France, Italy, the Netherlands, and Spain, over the period from 2002 to 2009. Our results show that executive stock option holdings and stock options delta are associated with lower dividend payments in our sample of European countries, where we do not observe any presence of dividend protection for executive stock options. We find that this relationship is mainly driven by exercisable stock options and by options that are in-the-money. Additionally, we observe that executive stock option holdings and stock options delta have a negative impact on total payout suggesting that executives do not substitute share repurchases for dividends. Furthermore, the fraction of share repurchases in total payout increases as executive stock option holdings and stock options delta increase. Finally, our results show that executive share ownership and stock-based payperformance sensitivity may mitigate agency conflicts by significantly increasing the level of total payout.JEL Classification: G35, G32, G34

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“…Research on executive pay in Europe usually relies on databases such as BoardEx or Capital IQ when measuring individual CEO compensation (see for example Burns, McTier, and Minnick 2015, Croci, Gonenc, and Ozkan 2012, De Cesari and Ozkan 2015, Conyon et al 2013, Geiler and Renneboog 2016. Another method that is used are the data handpicked from companies' annual reports (for example Bouras and Gallali 2016, Hüttenbrink et al 2014, Muslu 2010, Oxelheim and Randøy 2005, Schmid and Wurster 2016, Gupta, Chu, and Ge 2016.…”

Section: Measurement Of Executive Compensation and Institutional Backmentioning

confidence: 99%

Executive Compensation in Europe: Realized Gains from Stock-Based Pay

2018

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This paper adds to the empirical evidence on the extent to which stock-based pay incentivizes and rewards European corporate executives. It shows that the actual realized gains (that is, take-home compensation) from stock-based pay of CEOs in European publicly-listed firms may be underestimated by the use of "estimated fair value" measures. The paper also documents the heterogeneity among countries in terms of the levels and components of CEO take-home pay. We base our work on a sample of 301 large, publicly-traded companies listed in the S&P Europe 350 index from 11 EU countries: and United Kingdom for the fiscal year 2015. Through analyzing companies' annual reports, we have hand-collected data on various elements of compensation of the company's CEO in 2015, including the gains that executives realize from stock-based pay. We document that on average half of the total compensation of the European CEOs in our sample is stock-based, measured by actual realized gains, with large differences among countries. Although in some European countries the majority of total compensation is stock-based, the proportions are still well below those that prevail in the 1 United States. A comparison of the realized-gains measure of CEO compensation with the data based on fair value estimates shows that the latter underestimates the relevance of stockbased pay, in the case of some countries dramatically. Our research findings add to the existing research on CEO pay and the link between pay of EU-based corporate executives and the performance of the companies that they manage. Based on our work, we argue that realized gains measures of CEO pay should be the standard for assessing the incentives and rewards of senior corporate executives in Europe. Our research is the first step in building time series of European executive compensation that will be useful for policies concerning corporate governance and economic performance.

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Equity-incentive compensation and payout policy in Europe

Cited by 47 publications

References 43 publications

Equity incentive schemes, investor protection and corporate performance

Equity incentive schemes, investor protection and corporate performance

Executive incentives and payout policy: Empirical evidence from Europe

Executive Compensation in Europe: Realized Gains from Stock-Based Pay

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