Thesis advisor: Philip Strahan / Chapter 1: Executive Compensation and Aspirational Peer Benchmarking Abstract: Using a comprehensive, hand-collected dataset of explicit peer group relationships, I document that small firms engage in upward compensation benchmarking to a much greater degree than large firms do. In contrast to the prior literature studying larger firms, small firms choose aspirational peers that reflect their executives' shifting opportunity sets. For these firms, compensation benchmarking is indicative of future growth and performance, and the rate at which pay adjusts toward peer levels is sensitive to the transferability of managers' human capital. Overall, the data suggest that growing and outperforming small firms strategically use upward benchmarking to adjust pay in an effort to retain managerial talent. Chapter 2: Common Ownership and Relative Performance Evaluation Abstract: Recent research suggests that large institutional shareholders that simultaneously hold positions in naturally competing firms may influence managers to collude and reduce product market competition. This paper finds that common owners do not alter executive incentive schemes in a way that is conducive to collusion. I find that common ownership is positively related to the use of explicit relative performance evaluation (RPE), which rewards executives for outperforming their peers. Additionally, commonly held firms are more likely to benchmark RPE awards against commonly held peers. My results suggest that the managers of commonly held firms lack the financial incentives to collude with product market rivals. / Thesis (PhD) — Boston College, 2018. / Submitted to: Boston College. Carroll School of Management. / Discipline: Finance.

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.

<p>In the middle of the financial turmoil, many managers are blamed by journalists or politicians to be responsible for the crisis. For unknown reasons, this crisis born elsewhere than in large quoted companies, has struck top executives and CEOs, accused by an angry public to benefit from excessive compensations. However this wave of protest has highlighted the field of executive compensation and sparked the academic debate regarding the determinants of executive pay, with a particular focus on the relation between pay and performance.</p><p> </p><p>In this paper we discuss the role and attributes of executives, their remuneration schemes and the trend evolution in terms of package components and overall amounts. To delimit our study, we focus on the Anglo-American model only; the most criticized one, especially because of the important part covered by stock options. We conduct a theory review to provide a clear understanding of what executive compensation is and the impact it can have on the performance and long-term value creation. To help us achieve this, we use the agency theory, explaining the relationship between the agent, being the executive, and the principal, being the shareholder. We aim at determining whereas there is a un-balance in the power distribution, linked to a managerial power increase. Trough a case study about Bank of America, we study the protests around executive pay, before concluding and questioning ourselves about the economic sense of compensation packages.</p><p> </p><p> </p>

In the middle of the financial turmoil, many managers are blamed by journalists or politicians to be responsible for the crisis. For unknown reasons, this crisis born elsewhere than in large quoted companies, has struck top executives and CEOs, accused by an angry public to benefit from excessive compensations. However this wave of protest has highlighted the field of executive compensation and sparked the academic debate regarding the determinants of executive pay, with a particular focus on the relation between pay and performance.   In this paper we discuss the role and attributes of executives, their remuneration schemes and the trend evolution in terms of package components and overall amounts. To delimit our study, we focus on the Anglo-American model only; the most criticized one, especially because of the important part covered by stock options. We conduct a theory review to provide a clear understanding of what executive compensation is and the impact it can have on the performance and long-term value creation. To help us achieve this, we use the agency theory, explaining the relationship between the agent, being the executive, and the principal, being the shareholder. We aim at determining whereas there is a un-balance in the power distribution, linked to a managerial power increase. Trough a case study about Bank of America, we study the protests around executive pay, before concluding and questioning ourselves about the economic sense of compensation packages.

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

Corporate governance, and the role of executive pay in particular, has received increased attention from the media, government, and the business arena in recent years. The study reported in this thesis adds to our understanding of both the components and determinants of Australian remuneration packages for the top management team. It does so in four main ways: 1. The study examines the determinants of compensation of a range of senior executives within the organisation, in addition to the CEO. No Australian research, to date, explores the structure and determinants of remuneration beyond the CEO; 2. The research is conducted in a contemporary setting and timeframe, where corporations are subject to expanded disclosure requirements, when compared to the subjects of prior Australian research; 3. It examines an expanded range of factors documented in overseas research as likely to relate to remuneration, some of which have not been previously examined in Australian work; 4. Finally, in developing hypotheses concerning factors expected to relate to remuneration, the study reconciles the perspectives provided by both agency and managerial power theories in terms of how they present similar and differing propositions. The research examines both cash and incentive components of executive compensation disclosed by a sample of top 300 Australian companies in 2005. The model incorporates measures of firm performance, economic characteristics, board monitoring and governance characteristics, and ownership characteristics in an attempt to explain the level of executive compensation. The study extends analysis beyond the CEO to incorporate an investigation of both the structure and determinants of compensation of the top five executives, in addition to the CEO. Results indicate that the structure of CEO compensation has changed since prior Australian research was conducted, to include a more heavy reliance on incentive pay. In contrast to the US, the structure of CEO remuneration differs from that of non-CEO executives. As managers move progressively up the senior executive hierarchy, short-term cash bonus and share-based incentive pay both become more important as components of remuneration. There is also a greater reliance on performance hurdles than has been documented in prior Australian and international research. The expectation that remuneration is now more strongly tied to firm performance is supported. The size and complexity of the firm are also considered to be important in determining the level of various components of both CEO and non-CEO executive compensation. This supports the view that larger, more complex entities attract higher quality executives, and pay for such quality and expertise. Growth firms are more likely to pay higher levels of incentive pay and total compensation to CEOs than non-growth firms. Executive remuneration also relates to the strength of various monitoring and governance mechanisms, although to a greater extent for CEOs than for other senior executives. Managers are able to influence the remuneration-setting process where governance structures are weak, or where they have greater influence. In some cases factors relating to CEO compensation differ from those associated with compensation of lower-level executives.