The objective of this study is to provide a more comprehensive understanding of executive compensation plans in China. On one hand, it examines the determinants of compensation practices by supplementing the classical principal-agent theory with tournament theory and managerial power theory. On the other hand, it tests whether the adoption of equity-based compensation delivers better company performance for Chinese listed companies. Using compensation data from Chinese listed companies between 2006 and 2011, it is found that compensation level is strongly aligned with accounting-based performance. In particular, compensation and performance are more aligned at the higher hierarchical level. In addition, the level of compensation significantly rises with hierarchical level. It is also found that companies with the presence of the remuneration committee tend to use performance-based compensation. However, compensation and performance are less aligned when the size of the remuneration committee is smaller, and when the proportion of insiders on the remuneration committee is higher. Finally, it is found that company accounting-based performance is improved one year after adopting equity-based compensation. This study offers the following practical implications for policy makers and other practitioners. First of all, the board of directors and its remuneration committee should take account of market-based performance, as well as equity-based compensation, when designing compensation contracts for executives. In addition, policy makers may follow developed countries in implementing legal compulsion for constructing a remuneration committee through enacting laws. Finally, a clear and strong legal support for the appropriate composition and size of the remuneration committee is needed, in order to prevent the decision-making processes of this committee from being influenced by managerial power.

Abstract I compare compensation arrangements of firms with private equity and public debt and firms with arrangements public equity and public debt. In a sample of 77 firms, I find that privately held firms offer less bonus compensation in levels, but more as a percentage of total income, less equity compensation, in levels and as a percentage of total income, and less total compensation. I propose and test three possible explanations for these differences. The first explanation is that managers of private firms own more of the company they manage, and thus less annual equity-based compensation is required to align incentives. The tests I employ do not support this hypothesis. Tests of the second explanation, that difficulties associated with the valuation/liquidity of private equity shares drive differences, were significant. The third explanation is that superior monitoring among firms with private debt drives compensation differences. I find no support for this hypothesis. Taken together, these results are consistent with the explanation that privately held firms compensate their managers differently due to the inherent difficulty in valuing and/or liquidating equity shares.

The compensation of chief executive officers has long been an alluring and controversial topic, especially in light of the rapid rise in CEO earnings over the past several decades, which has provoked discussion on the manner in which CEOs are monetarily rewarded. Recently, university presidents have joined company CEOs in the public spotlight, as increasing levels of compensation for college presidents have also sparked scrutiny and debate. This paper examines the determinants behind CEO compensation and investigates the extent to which insights on these factors compare to the compensation determinants of chief executives at universities. Ultimately, this study finds similarities between the determinants of compensation for these two executive groups, specifically in the significance of organization size, type, and performance, as well as personal executive characteristics such as gender and tenure. The findings therefore suggest that these executives have similar job responsibilities, and the results also possess important insights and applications to relevant issues regarding executive compensation.

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Widespread losses during the recent financial crisis have raised concerns that equitybased CEO compensation (stocks and stock options) causes risky bank policies. This has led to the need to understand whether CEO pay can be re-structured such that it dampens risk-taking incentives. Against this background, this thesis analyses if debtbased compensation (also known as inside debt and consisting of pension benefits and deferred compensation) motivates CEOs to pursue risk-reducing bank policies. Over three decades of research into executive compensation has not explored the impact of inside debt, primarily due to lack of detailed data on inside debt which only became available after 2006 in the United States (US). The paucity of empirical work on inside debt is particularly unfortunate, given that the value of inside debt is often substantial. This dissertation provides one of the first empirical investigations into the impact of inside debt on bank risk-taking by determining whether CEO inside debt leads to less risky behaviour, through three policy decisions that are capable of increasing the overall risk of the bank. First, this thesis focuses on the payout policies of banks. Bank payouts divert cash to shareholders, while leaving behind riskier and less liquid assets to repay creditors in the future. Payouts, thus, constitute a type of risk-taking that benefits shareholders at the expense of creditors. The results presented in this thesis indicate that higher inside debt results in more conservative bank payout policies. Specifically, CEOs paid with more inside debt are more likely to cut payouts and to cut payouts by a larger amount. Reductions in payouts occur through a decrease in both dividends and repurchases. The results also hold over a sub-sample of banks which received government support in the form of the Troubled Asset Relief Program (TARP) where the link between risk-taking and payouts is of particular relevance because it involves wealth transfers from the taxpayer to shareholders. Second, this thesis tests the impact of inside debt on the risk implications of bank acquisitions. Bank acquisitions are large scale investment decisions that can affect bank risk. To this end, this thesis shows that higher inside debt holdings motivate CEOs to pursue acquisitions that result in lower bank default risk. It also prevents CEOs from using acquisitions to shift risk to the financial safety-net. Since the safety net is underwritten by the taxpayer, the results show that CEO inside debt has a measurable impact on the subsidy which bank shareholders obtain from taxpayers. Third, the thesis shows that inside debt plays a critical role in influencing bank capital holdings. Higher equity capital provides creditors with a larger loss-absorbing equity buffer to protect the value of their claims on bank cash flows. Ceteris paribus, higher equity protects creditors from losses. To this end, this thesis shows that higher inside debt results in motivating banks to hold higher capital, whether defined using regulatory or economic terms. Higher inside debt also results in reducing the estimated value of the taxpayer losses. Furthermore, banks with higher inside debt are at a lower risk of facing capital shortfalls. Taken together, the study provides insights on how incentives stemming from inside debt impact bank policies in a manner that protects creditor interests. Inside debt can help in addressing excessive risk-taking concerns by aligning the interests of CEOs with those of creditors, regulators, and the taxpayer. This thesis makes a novel contribution to the banking literature by providing evidence on the implications of inside debt in the US banking industry. This work should be interpreted as part of a wider body of research which demonstrates that inside debt matters for bank risk-taking and that this role of inside debt should be recognized more widely in ongoing discussions on compensation incentives in banking.

acase@tulane.edu / Despite the recent advocates for lengthening executive compensation duration to curb short-termism and promote long-term value creation, there is no study investigating whether long pay duration induces better investment decisions in the long run. Using a comprehensive measure of compensation duration, we find that CEOs with long pay duration are more likely to engage in large acquisitions. These acquisitions receive a significantly worse market reaction, and experience lower post-acquisition abnormal operating and stock performance compared with deals conducted by CEOs with short pay duration. Further analysis suggests that negative association between compensation duration and acquisition performance is driven by the use of time-vesting compensation plan. Duration of performance-vesting plans has no significant effect on M&A performance. Lastly, we find that CEOs are likely to engage in more risk-decreasing M&As, as long pay duration plans impose a higher firm risk to executives. The results highlight the complex nature of compensation duration and suggest that focusing on one dimension of compensation design is insufficient to create long-term shareholder value. / 1 / Qi-Yuan Peng

This study investigates the relationships among corporate governance mechanism, firm performance, and executive compensation within Chinese publicly listed firms. The corporate governance structure in China is a unique combination of the Anglo-American model and the German system by including a board of director and a supervisory board simultaneously, and has two monitoring organs, independent directors and supervisory board, co-existing. One of the special features of the Chinese publicly listed firms is their close relationship with the government because most of them were converted from state-owned enterprises at the beginning of the market-oriented economic reform in China. Therefore, we attempt to explore the effects of political connections of their ultimate controllers on corporate governance mechanism, on firm performance, and on executive compensation in China. Our findings indicate a dysfunctional corporate governance system in China, which cannot bring improved firm performance but grant executives high compensations. While we take into consideration the political connections, our results show that they deteriorate corporate governance mechanism, but do not result in inferior firm performance. Robustness tests demonstrate a non-linear effect of corporate governance on executive compensation, jointly depending on the status of a firms political connection and its ownership structure.

In the first chapter, I study a recent and important innovation, the shift towards independent compensation consultants that provide advice only to boards. I construct a theoretical model to conceptualize the potential impact of independent consultants and then develop an empirical strategy to quantify the impact. One contribution of the paper is to provide strong identification of the impact of independent advice, something that has been challenged by the lack of appropriate data. I use a unique sample of Canadian firms which allows me to directly measure the impact of non-compensation related consulting fees on compensation advice. I conduct a number of empirical experiments but the main tests exploit a "quasi-natural experiment" provided by the creation of an independent consultant, Hugessen Consulting, as a spin-off from Mercer. I show that switching from an a ffiliated consultant to an independent consultant is associated with an increase in managerial incentives. Despite the benefits of independent advice, independent consultants may not be hired due to higher fees, the influence of powerful CEOs, or because boards already possess adequate expertise. In the second chapter, using a simple model of incentive contracting as a guide, I examine empirically whether some aspects of executive stock option backdating may be an optimal response of firms to distortions in the institutional environment, in particular tax law and accounting rules. Some of the findings suggest that firms may attempt to effi ciently lower the exercise price of the executive options in order to enhance managerial incentives for risk averse and poorly diversified executives. In the presence of restrictive accounting and tax rules, backdating may be a mechanism by which to achieve this objective of better incentives. Consistent with this explanation I find that backdating is associated with lower CEO pay levels but higher CEO incentives. In the final chapter, I use a dynamic structural model to show that on average firms excessively smooth their payout while maintaining larger than optimal levels of cash (excess cash) on their balance sheets. I provide an agency explanation for the positive correlation between dividend smoothing and cash savings. I show that the dynamic effect of managerial perceived cost to cutting payout results in accumulation of excess cash and distortion of shareholder value.

The Financial Accounting Standards Board (FASB)/ International Accounting Standards Board (IASB) proposed Conceptual Framework solidifies stewardship as a primary financial reporting objective. Concurrently, fair value (FV) continues to be emphasized in FASB and IASB standards. In this study, using data from real estate firms in the UK, I test whether FVs provide stewardship-relevant information incremental to information provided by historical costs. Measuring stewardship by changes in CEO cash compensation and FVs through revaluations of investment properties, I find FVs provide stewardship information beyond historical costs; however, FVs must be supported by external appraisals to be useful. Further, FVs help to explain the traditional association between stock returns and compensation. The actual realization of FV changes through sale continues to be rewarded through compensation, meaning the full compensation value of FV changes is not given until realized. FV changes provide more useful stewardship information when FV estimates are of higher quality or when the CEO is more strongly governed. I also find that higher sensitivity to management effort, proxied by firm growth opportunities, makes FV changes more stewardship-relevant. Overall, I conclude that for UK real estate firms, FVs are useful for assessing management's stewardship with improvements in estimate quality and sensitivity to management effort increasing stewardship-usefulness; however, historical costs continue to be relevant for stewardship. My thesis provides insight into what information best captures management stewardship.

This study investigates the relationships among corporate governance mechanism, firm performance, and executive compensation within Chinese publicly listed firms. The corporate governance structure in China is a unique combination of the Anglo-American model and the German system by including a board of director and a supervisory board simultaneously, and has two monitoring organs, independent directors and supervisory board, co-existing. One of the special features of the Chinese publicly listed firms is their close relationship with the government because most of them were converted from state-owned enterprises at the beginning of the market-oriented economic reform in China. Therefore, we attempt to explore the effects of political connections of their ultimate controllers on corporate governance mechanism, on firm performance, and on executive compensation in China. Our findings indicate a dysfunctional corporate governance system in China, which cannot bring improved firm performance but grant executives high compensations. While we take into consideration the political connections, our results show that they deteriorate corporate governance mechanism, but do not result in inferior firm performance. Robustness tests demonstrate a non-linear effect of corporate governance on executive compensation, jointly depending on the status of a firms political connection and its ownership structure.