Executives' compensation has been on the forefront of the public and political debate since the recent financial crisis. One of the measures publicly discussed is a general upper boundary to top management compensation packages ("salary cap", "maximum wage"). While such measures are novelties to the corporate world, the North American major sports leagues have been using maximum compensation regulations for decades. This paper exploits the 23-year experience with salary cap regulations from the National Football League (NFL). The results show a significant negative relation between the success of NFL teams and the amount of the net (after-tax) salary cap represented by the personal income tax rate of the teams' home states. A team from California (highest average tax rate) wins 2.256 games less per year and has an 11% reduced probability of making the playoffs than a team located in a no-tax state such as Florida or Texas. The paper contributes to and informs the ongoing public and political debate regarding the regulation of executive compensation, and its effects on the performance of the regulated entities. / Series: WU International Taxation Research Paper Series

Magister Commercii - MCom / The on-going displeasure displayed by the media and business commentators, relating to apparent excessive and unwarranted executive directors' salaries, has increased since the financial turmoil experienced in 2008. The commentaries and reports suggest that corporate governance interventions are not strong enough to curb the excessive remuneration packages awarded to executives and specifically to Chief Executive Officers (CEOs). The purpose of the research is to examine the factors that determine and/or shape the relationship between the Chief Executive Officer's (CEO's) compensation and the wealth created for shareholders. The investigation further seeks to find the corporate governance elements, systems and processes that assist in monitoring the CEO's remuneration and performance contract. The null hypothesis is that poor corporate governance prevails in South African listed companies resulting in CEO compensation not being aligned to shareholder wealth creation. The aim is to establish the effectiveness of South African listed companies' adherence to corporate governance measures in addressing the principal/agent problem, commonly referred to as the agency problem. The research embraces a sample of the top 100 actively trading companies listed on the Johannesburg Stock Exchange (JSE) using secondary data. The study builds on existing theories and provides knowledge from a South African perspective.

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This paper investigates the effect of CEO compensation structure on the risk-taking of the firms in Sweden. In addition, the study examines whether the gender of the CEO plays a role in this relationship. In the recent decades, there has been a drastic increase in the use of variable pay in the CEO compensation package, motivated by the alignment of risk preferences between shareholders and CEOs. However, researchers have failed to reach a unanimous conclusion regarding the effect of variable pay on risk-taking. This study examines the companies listed on Nasdaq OMX Stockholm, comprising 643 observations during the three-year period from 2017- 2019. The results from this study find no positive relationship between compensation and risk-taking as predicted by the agency theory. The study results confirm no or negative relation, depending on the risk measure; indicating that increased CEO variable compensation reduces firm risk through less financial leverage and no significant relationship is found between variable pay and volatility of stock return. Moreover, when examining the gender aspect of risk-taking, no significant difference is found and gender has no impact in the effect of compensation structure on risk-taking.

CEO compensation is an important issue since shareholders, politicians, regulators, and the media have different opinions on the appropriate level. Critics argue that CEO compensation is excessive due to the weak link to firm performance, but even though the field has been thoroughly researched there are mixed findings regarding the relationship between CEO compensation and firm performance. Literature suggests that this could be due to that each economy is unique and has its specificities when determining CEO compensation. CEO compensation in Sweden is generally lower than in the US and Britain, but the performance of the firm is the same or even better. Therefore, the aim of this paper was to study the relationship between CEO compensation and firm performance in the Swedish context. Through a univariate, bivariate, and multivariate analysis of 38 firms on the Nasdaq OMX Stockholm, our findings show that there is no significant relationship between CEO compensation and firm performance in Swedish listed firms when using standard control variables. This result is more consistent with the managerial power theory and less with the agency theory and contract theory. The findings suggest that there is no alignment between Swedish CEOs' compensation incentives and the shareholders' interest (i.e., firm performance).

This thesis examines three important topics in corporate finance: the relation between the dividend-paying status of a firm and its investment and operating performance following a seasoned equity offering (SEO), the market's view on one-dollar CEO salary announcements, and the value of corporate social responsibility (CSR) in the event of a data breach. First, I provide an in-depth analysis of the connection between dividend payouts and corporate investment of SEO firms. Empirical studies have documented the decline in post-issue operating performance of SEO firms, and the potential overinvestment of SEO proceeds seems to be a critical factor. Studies on dividend payouts argue that the agency cost of overinvestment could be lowered when dividends are paid to reduce free cash flows held by managers. To examine the connection, I utilize two post-issue dividend policies, paying consecutive dividends or nothing, to separate my sample of SEO firms and compare the two groups' post-issue investment and operating performance. I find that non-dividend-paying SEO firms overinvest more, leading to the deterioration of asset turnover and worse post-issue operating performance compared with dividend-paying ones. The results suggest a beneficial effect of consistent dividend payouts on post-SEO business operations. Second, I examine the market reaction to the public announcement of a $1 CEO salary decision using explicit reasons for the decision and mechanisms for dealing with the base salary to disentangle possible explanations for the reaction. It shows that the market does not favour the so-called personal sacrifice when CEOs eliminate their salary to counter a downturn or crisis. When a firm is in a predicament or has poor performance, the market sees its CEO’s decision to give up the salary as a signal that the outlook for the firm is bleak and the CEO is attempting to save their position. However, when newly hired CEOs start with a $1 salary, the market reacts positively. The results ascertain that a $1 salary is not seen purely as a vehicle for interest alignment. Third, I investigate whether public firms' CSR activities pay off when they suffer a data breach that potentially harms their reputation and hurts firm value. I use a sample of US data breaches and two sources of environmental, social, and corporate governance (ESG) ratings to investigate whether CSR engagement by public firms mitigates the negative stock market reactions to their data breach announcements. I utilize pre-breach ESG scores to separate my sample of breached firms into high and low CSR groups. Using event study methodology, I find that the market reacts significantly negatively to only the low CSR group's announcements. Consistent with previous studies on how firms benefit from CSR activities when they face adversity and lose public trust, the results suggest that social performance protects firms against information leakage incidents. However, the extent to which the market assesses the ratings from different providers is still divergent, which is a concern for practitioners. / Thesis / Doctor of Philosophy (PhD)

This thesis explores board nationality diversity, focusing on foreign non-executive directors and their relationship with CEO compensation, firm performance, and crash risk for a sample of UK firms from 2002 to 2015. First, we examine the changes in board composition over the years and find an increase in foreign non-executive directors and in the number of foreign CEOs managing UK firms. We discover boards have become smaller, more independent and CEOs occupying dual roles have considerably reduced. Next, we analyse the relationship between foreign non executive directors and CEO compensation and note that firms with more foreign non executive directors pay less to their CEO. Moreover, European and other international non-executive directors are particularly effective at limiting CEO compensation. Then we examine the impact of foreign non-executive directors on firm performance and show that foreign non-executive directors positively impact firm value. CEO and executive directors’ equity-like compensation and share ownership also positively influences firm performance. Our findings suggest that European and American non executive directors are more effective in improving corporate performance. Finally, we analyse the relationship between foreign non-executive directors, CEO compensation and crash risk. Foreign non-executive directors monitor the board and mitigate the impact of CEO equity-linked pay on stock price crash risk. Our analysis reveals that leverage increases crash risk, but that foreign non-executive directors, of high leverage firms lower crash risk. Overall, foreign non-executive directors serve as effective monitors and advisors to moderate executive pay, improve firm performance and reduce stock price crash risk.

This thesis comprises three empirical studies that investigate the effects of director networks and corporate governance mechanisms on firm performance and CEO compensation. The first empirical study (chapter three) describes the extent of board networks among non-financial FTSE 350 firms listed on the London Stock Exchange during 2007-2010. We use the concept of the “centrality” from social network analysis to examine whether board networks are related to firm performance. We find that firms whose directors are more central in a network are associated with better financial performance. Consistent with the “Reputation Hypothesis” (Fama and Jensen, 1983), the number of director connections may proxy for director reputation. Directors are motivated to improve their reputation since they can use their directorships to signal to the market that they are good at decision-making, and at providing advice and monitoring management. The second empirical study (chapter four) investigates the effects of director networks on CEO compensation among non-financial FTSE 350 firms listed on the London Stock Exchange between 2007 and 2010, while controlling for CEO characteristics, corporate governance characteristics and firm characteristics. We first examine the impact of CEO networks (individual level) and second board networks (firm level) comprising all board members. We examine not only the total remuneration of the CEO but also two important components of the remuneration package, i.e. basic salary, and long term incentive plans (LTIPs). At the individual level, we find that a well-connected CEO measured by “centrality” receives higher total compensation. Although we find a positive relationship between basic salary and CEO networks, we do not find evidence of a relationship between LTIP compensation and CEO networks. The relationship between board networks and CEO compensation is also examined at the firm level. The results show that board networks have a positive and significant effect on total compensation and LTIP compensation but not on basic salary compensation. The third empirical study (chapter five) examines the effects of directors’ business networks, directors’ social networks and corporate governance mechanisms on firm performance. Previous studies have considered only business networks (directorships), while this study explores both business networks and social networks, such as current and past employment, education background, and other types of social activities (membership of golf clubs, membership of charity organizations, universities alumni, etc). We find that well-connected directors seem to use their networks to improve firm performance and in line with the interest of their shareholders. We further split the effects of board networks into business and social networks. We find that social networks play a more important role than business networks in improving firm performance, consistent with social capital theory (Coleman, 1990) which argues that networks of social connections can provide firms with valuable resources and information. Overall, this thesis provides empirical evidence that director networks and corporate governance mechanisms play an important role in affecting CEO remuneration and firm financial performance. The findings of this thesis suggest that regulators, firms and individuals should not only pay attention to business networks but also to social networks.

Forskningsproblem          Under 2006 infördes en lagändring kring att ersättning till VD måste specificeras i tilläggsupplysningar i årsredovisningen. Reglerna infördes från politikernas håll för att se en mer återhållsam ersättning till VD och återupprätta de senaste årens minskade förtroende för näringslivet. Dock har åsikter riktats mot lagändringen som menar att den har motverkat sitt syfte och istället trissat upp ersättningen till VD. Syfte                                   Syftet med studien är att förklara om det finns ett samband mellan utvecklingen av ersättningen till VD och kravet på tilläggsupplysningar. Metod                                Studien har en kvantitativ utgångspunkt och en poolad ansats. Två hypoteser har härletts ifrån befintlig teori och tidigare forskning. Hypoteserna testades gentemot data inhämtad ifrån 573 årsredovisningar utspritt över tre år. Slutsats                              Ett signifikant samband har identifierats som säger att ersättningen till VD har ökat sedan 2006. Resultatet styrks av tidigare forskning och de teorier som studien bygger på. Målet med lagändringen har således misslyckats. / Problem                             In 2006, a change in the law was introduced regarding disclosure about CEO compensation. The CEO compensation now had to be specified in the disclosure. The law was introduced by politicians who wanted to restrain the CEO compensation, which had affected the business community negative. However, opinions made against the change in the law claim that it is counterproductive and instead of decreasing the compensation, the law has increased the CEO compensation. Purpose                              The purpose of the study is to explain if there is a connection between the development of the CEO compensation and the requirement of disclosures. Method                              The study is based on a quantitative method and a pooled approach. Two hypotheses were derived from existing theory and previous research. The hypotheses were tested against data collected from 573 annual reports, spread over three years. Conclusion                         A significant connection was found and it says that the CEO compensation has increased since 2006. The result is supported by previous research and theories that the study is based on. The aim of the legislative change has therefore failed.

Cette thèse porte sur la question de la rémunération des dirigeants de grandes sociétés cotées et, de manière plus précise, sur les problèmes de justification posés par certains montants et pratiques de rémunération. L’enjeu est d’étudier l’origine et la signification de la controverse publique sur le sujet en la mettant en rapport avec le modèle économique libéral qui dit que le « prix » du dirigeant est un simple prix de marché, soit le produit d’une confrontation entre une offre et une demande de travail managérial de haut niveau. En cela, notre objectif n’est pas de porter un jugement ou une simple évaluation sur la rémunération des dirigeants, mais de comprendre comment et en quoi la controverse étudiée fait problème, comment et en quoi elle interroge, en miroir, la nature et le fonctionnement des sociétés libérales. La démarche est donc « compréhensive », au sens où il s’agit de prendre appui sur le discours des acteurs de la controverse pour « déconstruire » un modèle de justification en apparence élémentaire, qui est aussi l’expression de l’idéologie dominante. / This thesis addresses the question of CEO compensation in large publicly-held firms and, more precisely, the problems of justification that arise with certain amounts and practices of compensation. The objective is to analyze the origin and meaning of the public controversy sparked by the subject by relating it to the liberal economic model according to which the “price” of CEOs is simply a market price, that is, the result of the confrontation between supply and demand of top-level managerial labor. As such, our objective is not to produce a judgment or a mere evaluation of CEO compensation, but rather to understand how and why the controversy generates a problem, or how and why it questions, reflexively, the nature and functioning of liberal societies. The approach is therefore “interpretative,” in the sense that it is based on the discourse of the actors involved in the controversy in order to “deconstruct” an apparently elementary model of justification, that is also the expression of the dominant ideology.