published_or_final_version / Business Administration / Master / Master of Business Administration

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Newly listed firms have a short history of stock value, and may initially not rely on stock price information in incentive contracting as much as seasoned firms. In this thesis, I examine managerial incentive contracts in newly listed firms by comparing CEO compensation between IPO firms and seasoned firms. For IPOs listed on NYSE from 1993 to 2001, a matching sample of seasoned firms was obtained according to criteria in industry, size and book-to-market ratio. By examining the multi-dimensions of CEO incentives, including cash compensation, option grants, stock ownership, and dismissal for the first six years after listing, I document significant differences between IPOs and seasoned firms. I find that while the sensitivity of short-term incentive pay to shareholder return is lower in IPOs than in seasoned firms, long-term incentives from CEO stock ownership are significantly more important in newly listed firms. Moreover, although CEO turnover in an IPO firm is lower, it depends on both stock-price return and accounting performance. These IPO-seasoned differences diminish over time and disappear in three to five years. My findings suggest that to motivate the manager of a newly listed firm, the board avoids short-term uncertainty associated with new stocks while emphasizing the role of shareholder value in the long run. / published_or_final_version / Economics and Finance / Master / Master of Philosophy

This thesis consists of two essays in corporate finance, one on newly listed firms’ post-IPO activities as acquisition targets and the other on corporate executive compensation. In the first essay, I examine a large sample of U.S. newly listed firms to analyze their likelihood of becoming a takeover target. I find that 27 percent of newly listed firms are acquired within five years after the IPO, which is compared with the seasoned-firm counterpart of 17 percent. This difference is economically large, statistically significant, and robust to various firm and market characteristics controls. Several recent studies have reported newly listed firms’ active activities as an acquirer. Contributing to this literature, my finding further identifies an active role of IPO firms as a takeover target. My finding is consistent with the presumed motivation of firms’ going public for a “double-exit” strategy: To sell the shares through a takeover after the company goes public. Economic rationales for this strategy include advantages from auctioning off a minority stake to dispersed shareholders and more efficient bargaining in takeover negotiations due to increased share liquidity and reduced uncertainty after the IPO. Therefore, going public can be an optimal first step in the process of selling a company. In further support of this motivation, I find that IPO firms, as an acquisition target, receive higher takeover premiums than do comparable privately held targets and seasoned target firms. In conclusion, my findings are consistent with the double-exit strategy predicted by theory, suggesting that IPOs facilitate subsequent sales of the companies and that the strategy is economically justified. In the second essay, I study executive compensation under the Japanese corporate governance system. In March 2010, the Japanese regulator enacted the first legislation regarding the disclosure of director compensation to named individuals. With access to the first publicly available data for Japanese executives, I document comprehensive evidence on the level, structure, and mechanisms of CEO compensation. My findings reveal Japanese practices in CEO pay that differ from the well-known Anglo-American model in significant ways. Its distinct features include base salary dominance and unusually low levels of pay and pay variation. I also identify significant impacts on the compensation system of corporate governance and U.S. influence factors, such as keiretsu groups, financial institutions, US-style compensation committees, and cross-listing on US stock exchanges. / published_or_final_version / Economics and Finance / Doctoral / Doctor of Philosophy

This study provides evidence concerning the endogenous determination of managerial compensation contracts. To avoid the confounding effect of tax considerations, we limit our attention to the choice among long-term nonqualified incentive plans. Specifically, we consider a two-part decision faced by the firm: (1) whether to add an accounting-based "performance plan" to the existing portfolio of compensation contracts and (2) if the firm adopts a plan, the choice between a "relative" or an "absolute" performance measure. Based on some behavioral implications of performance plans which distinguish them from alternative contracts, we develop hypotheses which relate the adoption and design of a performance plan to the firm's general incentive contracting environment. We test these hypotheses using a choice-based sample, evenly divided between performance plan adopters and nonadopters. For the purposes of parameter estimation, we use the multinomial logit model to reflect the qualitative, hierarchical nature of the decision setting. Our results indicate that variables which proxy for the incentive environment can explain which firms will adopt a performance plan, and also the type of performance measure used by the adopting firms.

Research thesis submitted in partial fulfilment (50%) of the Degree of Master of Commerce University of the Witwatersrand, Johannesburg, Faculty of Commerce, Law and Management – School of Accountancy 2015 / Executive remuneration has been under intense scrutiny by both investors and the media over the past 10 to 20 years because of the increasing magnitude of these remuneration packages (Otten, 2007; Sapp, 2007). This research report explores the relationship between executive director remuneration and the performance of publically listed companies (JSE) in South Africa, as well as ascertaining whether any relationship exists between director profiles and director remuneration. The study population comprised all South African companies listed on the JSE during 2014. The final sample consisted of 49 companies after the transformation of the data. A total of 708 director profiles were examined. The results of the study appeared to indicate a lack of correlation between executive director remuneration and company performance in publically listed South African companies. On the other hand, the results of the regression provided empirical support for the existence of a significant positive relationship between director remuneration and total assets. The results also illustrated that, in general, directors who are male over the age of 50 and who have served as directors for periods of between six to 10 years receive higher total remuneration compared to other classes of directors. It was also noted that race appeared not to play a role in director remuneration. Key words: Executive director remuneration, executive director profiles, company performance, ROA, Tobin’s Q / MT2017

A research report submitted to the Faculty of Management, University of the Witwatersrand, Johannesburg, in partial fulfilment of the requirements for the degree of Master of Management. 1994 / Organisations in South Africa are. paying out millions of Rands in financial incentives to executives without ,knowing conclusively whether or not company performance actually improves as a result of financial incentive schemes. Unions, tne media, workers, politicians and others are paying increasing attention to the levels of compensation that executives receive. The question being asked is whether these levels ate really necessary. This, the first research of its mud in South Africa, surveys the views of 121 top managers, from 17 organisations using incentive schemes, on the, impact of these schemes. There is convincing evidence that they are perceived to increase motivation and company performance, build teamwork and are effective in aligning the interests of managers and shareholders. The schemes are valuable in attracting, retaining and motivating executives" Given the complexity of setting executive remuneration, it is submitted. that there be no interference in the level of incentive scheme payouts. The factor analysis yielded a four factor solution, which was interpreted in terms of the literature review and constructs in the questionnaire. The first factor revealed that incentives are a motivator and increase company performance. The) build teamwork and are effective in aligning the interests of managers and shareholders. The second factor state; that incentives should be underpinned by openness and transparency. A fundamental principle behind this is that the relevant financial position should be known by all participants. It was also stated that the whole organisation i.e, all IfNels , should be on an incentive scheme, The third factor highlighted risk aversion in these executives and that basic salary is most important. The fourth factor, locus of control, stressed the importance of the scheme to the individual personally in terms of motivation, focus, reward, retention of services and the ability to control the incentive scheme payout. 111e surprising finding was the extent to which SA executives were risk averse and just how important the basic salary is. Guidelines, based on the factor analysis, content analysis and oo:rrespohd~nce analysis conducted on the questionnaires, ate offered to the designers incentive· schemes. Without correctly designed and aggressive incentive schemes the owners oforgamsations could expect very m.ediocre, "9 to S" type of commitment from their top·management team. Incentive schemes playa vital role in the design of com.petitive remuneration systems. Their importance should not be underestimated. / MT2017

Thesis. 1978. M.S.--Massachusetts Institute of Technology. Alfred P. Sloan School of Management. / MICROFICHE COPY AVAILABLE IN ARCHIVES AND DEWEY. / Includes bibliographical references. / M.S.

M.Comm. (Industrial Psychology) / With the implementation of King III in 2010 and the promulgation of the new Companies Act in 2011, the corporate governance landscape in South Africa was irrevocably changed. Simultaneously, there was an increase in the protestations against the perceived excesses of executive1 remuneration packages. The question posed in this research study was what does adherence to the spirit of corporate governance with regard to executive remuneration entail? The literature study explores the perceived separation between ownership and control, as well as attempts at controlling this separation via structured executive remuneration packages. It further provides an overview of the relative efficacy of voluntary codes and compulsory codes. Various methods of determining executive remuneration are investigated and the possible shortcomings of each are identified. Sixteen semi-structured, in-depth interviews, equally divided amongst four interest groups in the field of executive remuneration, were conducted. A content analysis of the qualitative data that emerged from the interviews resulted in 39 first-order themes that were then iterated to 11 second-order themes. These second-order themes were categorised into two sets, namely five that are indicative of behaviour in support of adherence to the spirit of corporate governance with regard to executive remuneration, and six that are indicative of behaviour that undermines the spirit of corporate governance in this regard. The five themes indicative of behaviour in support of adherence to the spirit of corporate governance were: problem recognition, sustainable development, embracing governance, remuneration management competence, and ethical intent. The six themes found to indicate behaviour that undermines adherence to the spirit of corporate governance with regard to executive remuneration were: shareholder appeasement, misrepresentation, elitism, justification, arrogance, and intentional amorality. It emanated from the findings that greater social debate should be stimulated on how ethics can be brought into the domain of executive remuneration. A potentially important facilitator of such debate could be tertiary education institutions responsible for management education integrating the ethics of executive remuneration in curricula. It is further recommended boards, who are tasked with the governance of their organisations, be made aware of the behavioural manifestations that support or undermine adherence to the spirit of governance as it relates to executive remuneration. Remuneration consultants could also benefit from these findings, and could assist organisations to design fair and responsible systems of remuneration for executives and senior employees.

This dissertation analyzes the effect of a stock market downturn on executive compensation plans which include stock option contracts. A model is developed to determine sufficient conditions for which the optimal compensation contract exhibits characteristics of a fixed salary plus stock option. If a publicly known shift in the distribution of firm value occurs after contracting and before the agent takes his action, then it can be shown to be in the principal's interest to renegotiate the agent's contract. The resulting contract is again a fixed salary plus stock options with lower exercise prices than in the original contract. It is assumed that the shift in the distribution of firm value is a low probability event that is not contracted upon. To determine whether or not it is optimal to contract on a low probability event the set of original contract and rengotiated contract is compared to a contract that is complete with respect to the event. Benefits to complete contracting exist if the agent commits to stay after information about the event becomes available. However, if the agent can leave at any time, the principal may prefer, initially, not to contract on low probability events and simply renegotiate the contract if a low probability event occurs. Renegotiation can take the form of lowering the exercise price of outstanding stock options or adding a layer of options with a lower exercise price than existing outstanding options. Nonparametric tests on stock option grants in 1985 through 1988 indicate that the size of grants in 1987 and 1988 is significantly larger than in 1985 and 1986. These results support the prediction that stock options outstanding in 1987 were renegotiated following the stock crash in October 1987. / Business, Sauder School of / Accounting, Division of / Graduate