The Ombudsman: Are Top Executives Paid Enough? An Evidence-Based Review

Jacquart, Philippe; Armstrong, J. Scott

doi:10.1287/inte.2013.0705

Cited by 13 publications

(1 citation statement)

References 66 publications

(34 reference statements)

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“…First, as suggested in the business world, employees may benefit from higher CEO compensation if such higher pay leads to attracting better CEOs and incentivizing CEOs to perform at higher levels, thereby improving firm performance. However, evidence on the impact of CEO pay on firm performance is inconclusive (Frydman and Jenter 2010;Jacquart and Armstrong 2013;Haynes et al 2017) and there is little evidence that firm performance improves employee well-being (Krekel et al 2019).…”

Section: Ceo Compensation and Employee Engagementmentioning

confidence: 99%

The influence of CEO compensation on employee engagement

Hendriks

Burger²,

Commandeur³

2022

Rev Manag Sci

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The soaring compensation levels of chief executive officers (CEOs) have spurred an intense debate about its outcomes. This paper examines an understudied outcome in this regard: employee engagement. Using a dynamic panel model with data from 336 publicly listed firms across 26 countries, we find that employee engagement is generally unaffected by CEO (over)compensation. However, negative effects emerge under specific conditions. First, employee engagement declines with negative media coverage about CEO compensation. Second, employee engagement declines with greater CEO (over)compensation in the financial sector, which is a sector with extraordinary levels of CEO compensation and compensation controversies. The findings suggest that a ceiling effect exists, at which point negative effects emerge and employee engagement becomes relevant in determining CEO compensation policies, while the general insensitivity of employee engagement to CEO compensation can help explain the soaring CEO compensation levels.

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Section: Ceo Compensation and Employee Engagementmentioning

confidence: 99%

The influence of CEO compensation on employee engagement

Hendriks

Burger²,

Commandeur³

2022

Rev Manag Sci

View full text Add to dashboard Cite

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

Shi

Connelly

Hoskisson

2016

Strategic Management Journal

183

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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