Accountants agree that nonqualified stock options are compensatory. However, only a limited amount of remuneration cost is recognized on the date that such options are granted; frequently, there is no recognition. Hence, the income numbers reported by grantor firms may be over-stated owing to such lack of recognition. In this regard, the objective of this study is to estimate the value of compensation implied in grants of stock options, and to present evidence pertaining to the materiality of the impact these estimates have on income from continuing operations of selected firms. The Black and Scholes option pricing model was selected to estimate the value of a stock option. This formula provides a probabilistic point estimate of the market value of a call option. A restrictive set of assumptions underlie the derivation of this formula, but empirical studies indicate that alterations of the model to accommodate violations of these assumptions fail to impart greater predictive ability. The standard Black and Scholes formula was used to estimate the compensation implied in grants of stock options during 1978 for a non-random sample of 171 firms. These estimates were adjusted for amounts related to such grants that had already been recorded. Since most firms granted options having exercise prices equal to the market prices of the optioned shares, such adjustments were infrequent. The resulting incremental compensation estimate was divided by income from continuing operations, giving an option compensation index for each enterprise in the sample. Assuming 10 percent, 5 percent, and 3 percent materiality thresholds, income from continuing operations is materially reduced for 16 percent, 31 percent, and 47 percent of the sampled firms, respectively. A statistical analysis suggests systematic association between the magnitude of the compensation index and the classification of the industry in which the enterprise operates. Other statistical tests indicate that estimates of compensation implied in grants of stock options are material for large firms in the manufacturing and retail sectors, and for small firms in the manufacturing, retail, and banking-finance sectors. These statistical results must be interpreted circumspectly owing to the non-random sample. Nevertheless, this evidence supports a re-examination of the accounting methods for stock options.

The first essay analyzes mutual funds proxy voting records on shareholder proposals. The results indicate that mutual funds support shareholder proposals and vote against management for proposals that are likely to increase shareholders wealth and rights, in firms with weaker external monitoring mechanisms, in firms with entrenched management, and when funds have longer investment horizon. Mutual funds mostly take management sides on executive compensation related proposals, when they have higher ownership concentration, and when they belong to bigger fund families. The results further indicate that there is a positive reputational effect for the funds undertaking a monitoring role. Moreover, mutual funds reduce holdings when they disapprove of managements policy, but before doing so they take on an activist role by supporting shareholder proposals. The second essay investigates institutional investors trading behavior of acquiring firm stocks surrounding merger activities. We label investment companies and independent investment advisors as active institutions and banks, nonbank trusts and insurance companies as passive institutions. We find active institutions increase holdings of acquiring firm stocks for mergers with higher wealth implications. However, active institutions overreact to stock mergers at the announcement, which they appear to correct at the resolution quarter of the merger. The trading behavior of passive institutions suggests that these institutions disregard the market response of merger announcement in trading acquiring firm stocks at the announcement quarter. The passive institutions gradually update their beliefs and trade on the basis of merger wealth effect at the resolution quarter. The third essay examines relation between executive compensation structure with the existing level and changes of takeover defense mechanisms of firms. According to managerial entrenchment hypothesis, higher managerial power from adoption of takeover defense mechanisms would lead to generating higher rents for executives. Efficient contracting hypothesis argue that higher anti-takeover provisions would contribute in achieving efficient contracting by deferring compensation into the future due to the low possibility of hostile takeover. The results support managerial entrenchment hypothesis with regard to existing level of takeover defense mechanisms. With regard to changes in anti-takeover provisions, the existing level of managerial power influence the future pay structure.

Thesis (MPhil)--University of Stellenbosch, 2003. / ENGLISH ABSTRACT: The historical development of the role of directors in public listed companies contains inherent tensions by reference to the fiduciary responsibility of directors and the method in which directors are remunerated. The nature of incentive based remuneration is such that it will compel directors, in certain circumstances, to weigh their interests against those towards whom they owe a duty of care and a moral responsibility to act with prudence and temperance. The modem day corporate environment is complex and calls for directors with strong ethical views. This assignment endeavours to identify some of the complexities that contribute towards directors finding it difficult to stay on the ethical "straight and narrow" and attempts to weigh the effect of those factors against the effect of incentive remuneration, both as detractors from ethical behaviour. Both the shareholder supremacy business model and the stakeholder approach are analysed to identify those factors present in each that may add to the ethical complexity that directors have to deal with. The advent of the stakeholder approach in particular, adds an enormous amount of complexity. The case studies deal with two South African financial services companies that have both ceased trading as a consequence of unethical behaviour. The incentive remuneration models of both companies have been found to have played a major contributing role in the decision making processes in the companies, and have contributed to the demise of these organisations. Lessons are taken from the case studies and applied against the backdrop of the various principles of ethical behaviour namely rights, utility, justice and the ethics of responsibility. The finding of this study is that there is a role for incentive remuneration of directors, provided that the ethical pitfalls that this causes are recognised and steps taken to address them. Some of these steps are identified. / AFRIKAANSE OPSOMMING: Die historiese ontwikkeling van die direkteursrol, en spesifiek van openbare genoteerde maatskappye bevat inherente teenstrydighede met verwysmg na direkteursvergoeding en die vertrouensverpligtinge wat op direkteure rus. Die aard van direkteursvergoeding met 'n aansporingskomponent is so dat dit 'n direkteur van tyd tot tyd in 'n posisie plaas waar hy tussen sy eie belange en die van die ander belanghebbendes in 'n maatskappy, aan wie hy dit verskuldig is om met verdrag en versigtig op te tree, moet kies. Die hedendaagse maatskappyomgewing is kompleks van aard, en vereis direkteure met sterk etiese oortuigings. Hierdie werkstuk poog om sommige van die komplekse faktore wat afbreuk doen aan 'n direkteur se vermoe om ten alle tye streng eties op te tree, te identifiseer en op te weeg teen die effek wat direkteursvergoeding speel - beide as items wat afbreuk doen aan etiese optrede. Hier word ondersoek ingestel na beide die sogenaamde "aandeelhouersmodel" asook die" belanghebbende" model waarvolgens besigheid bedryf word. Die ontsluimering van die belanghebbende model veroorsaak spesifiek 'n aansienlike hoeveelheid etiese kompleksiteit. Die gevallestudies behandel twee Suid Afrikaanse fmansiele instellings wat hul bedrywighede gestaak het as gevolg van onetiese optrede deur direkteure. Die aansporingskomponent van die vergoedingsrnodelle in daardie maatskappye blyk 'n groot bydraende faktor te wees in die onetiese besluitneming wat plaasgevind het, en wat uiteindelik tot die ondergang van die ondernemings gelei het. Laastens, word die lesse wat geleer is uit die gevallestudies, toegepas in gewysigde format, en getoets aan die hand van die verskillende beginsels wat etiese besluitneming onderhou, naamlik die beginsels van regte, regverdigheid, utiliteit en die beginsel van etiese verantwoordelikheid. Daar word tot die slotsom gekom dat daar wel ruimte vir aansporingskemas vir direkteure is, maar dat dit slegs eties regverdigbaar sal wees mits ag geslaan word op die lesse wat uit die gevallestudie voortspruit, tesame met die impementering van sekere korrektiewe maatstawwe.

Thesis (MBA)--Stellenbosch University, 2007. / ENGLISH ABSTRACT: This is an introductory research into executive remuneration and its effectiveness as an instrument to generate company growth in South Africa. This research is based on the assumption that there is a direct relationship between company performance and growth, and directors' remuneration. Companies employ directors in an attempt to increase value to shareholders. Remuneration paid to directors is sometimes viewed as excessive. To determine whether executive remuneration is excessive, various elements have to be taken into account. These elements vary, depending on the point of view of the analyst. This research is based on the point of view of the shareholder. A remuneration strategy can be deemed effective when elements important to shareholders have shown a positive change relevant to the change in directors' remuneration. Thirty-eight companies have been sampled. The proxies of the ROA ratio as well as the share price growth have been used. It is apparent that of the companies sampled, the majority has an effective executive remuneration strategy in terms of driving company growth and performance. In 18 instances a change in directors' remuneration (seen in isolation) resulted in an outright benefit to the company. This change was an increase in directors' remuneration in 15 of the companies sampled. In three of the companies sampled, this change was a decrease in directors' remuneration. Interpreting the results of the sample data, within the ambit of the proxies used, the conclusion is that in these instances the executive remuneration strategy has been used as an effective instrument to generate company growth. In eight instances a change in directors' remuneration (seen in isolation) did not result in any benefit to the company. Six of these changes were an increase in directors' remuneration. Two of these changes were a decrease in directors' remuneration. Interpreting the results of the sample data, within the ambit of the proxies used, the conclusion is that in these instances the executive remuneration strategy had not been used as an effective instrument to generate company growth. In 12 instances a change in directors' remuneration (seen in isolation) resulted in some kind of benefit to the company. Ten of these changes were an increase in directors' remuneration . Two of these changes were a decrease in directors' remuneration . Interpreting the results of the sample data, within the ambit of the proxies used, the conclusion is that in these instances the executive remuneration strategy had been used as a partially effective instrument to generate company growth. The proxies of the ROA ratio as well as the growth in a company's share price can therefore be used to determine the effectiveness of a company's executive remuneration strategy in driving company growth and performance. These proxies can be used if the assumption is made that there is a relationship between company growth and performance and executive remuneration. Executive remuneration alone does not drive company growth. There are numerous other factors at playas well. Executive remuneration should, however, be closely scrutinised so that it is optimally used. Executive remuneration should be incentivised in such a way that increased remuneration results in an increase in the ROA ratio as well as in market related growth in the share price over a period of time. / AFRIKAANSE OPSOMMING: Hierdie is inleidende navorsing in uitvoerende bestuur se vergoeding en hul doeltreffendheid as 'n instrument om groei te bewerkstellig vir maatskappye in Suid-Afrika. Hierdie navorsing is gebaseer op die aanname dat daar 'n direkte verwantskap is tussen opbrengste en groei van maatskappye en die direkteursvergoeding. Maatskappye betrek direkteure om waarde vir beleggers te vermeerder. Direkteursvergoeding word soms beskou as oordadig. Om te bepaal of hierdie besoldiging oordadig is, moet verskeie aspekte in berekening gebring word. Hierdie aspekte verskil vanuit die oogpunt van analis tot analis. Hierdie navorsing is gebaseer vanuit die oogpunt van die aandeelhouer. 'n Besoldigingstrategie kan as suksesvol beskou word as die aspekte wat belangrik is vir die aandeelhouer positief verander het, teenoor die verandering in die direkteursvergoeding. Die resultate van 38 maatskappye is gebruik. Die opbrengs op bates verhouding en die groei in aandeleprys is as maalstaf gebruik. Oil blyk dal die meerderheid van maatskappye waarvan inligting gebruik is, wei 'n effektiewe uitvoerende besoldigingstrategie het in terme van maatskappygroei en opbrengste vir aandeelhouers. In 18 gevalle was die verandering in direkteursbesoldiging (in isolasie beskou) 'n direkte voordeel vir die maatskappy. Hierdie verandering was 'n vermeerdering van besoldiging in 15 gevalle. In drie gevalle was die verandering in besoldiging 'n vermindering . Interpretasie van die navorsing, met verwysing na die maatstawwe wat gebruik is, dui daarop dat (in hierdie gevalle) die uitvoerende besoldigingsstrategie as 'n effektiewe instrument gebruik is om maatskappygroei teweeg te bring. In agt gevalle was die resultaat van 'n verandering in direkteursbesoldiging (in isolasie beskou) nie tot voordeel van die maatskappy nie. In ses gevalle was die verandering in direkteursbesoldiging 'n vermeerdering. Twee van die veranderinge in direkteursbesoldiging was 'n vermindering. Interpretasie van die navorsing, met verwysing na die maatstawwe wat gebruik is, dui daarop dat (in hierdie gevalle) die uitvoerende besoldigingstrategie onsuksesvol as 'n effektiewe instrument gebruik is om maatskappygroei teweeg te bring. In 12 gevalle was die resultaat van 'n verandering in direkteursbesoldiging (in isolasie beskou) tot die een of ander voordeel van die maatskappy. In 10 gevalle was die verandering in direkteursbesoldiging 'n vermeerdering. In twee gevalle was die verandering in direkteursbesoldiging 'n vermindering. Interpretasie van die navorsing, met verwysing na die maatstawwe wat gebruik is, dui daarop dat (in hierdie gevalle) die uitvoerende besoldigingstrategie gedeeltelik suksesvol as 'n effektiewe instrument gebruik is om maatskappygroei teweeg te bring. Die maatstawwe van die opbrengste op bates verhouding en die van groei in aandeleprys kan dus aangewend word om die doeltreffendheid te bepaal van die uitvoerende besoldigingstrategie om maatskappygroei en opbrengste teweeg te bring. Hierdie maatstawwe kan gebruik word indien die aanname gemaak word dat daar 'n verwantskap is tussen maatskappygroei en opbrengste sowel as die uitvoerende besoldiging wat betaal word. Die uitvoerende besoldiging is nie die enigste faktor verantwoordelik vir maatskappygroei nie. Daar moet noukeurig gelet word op uitvoerende besoldiging sodat dit optimaal aangewend word. Uitvoerende besoldiging moet tot aansporing dien sodat meer besoldiging aanleiding gee tot 'n vermeerdering van die opbrengste op bates verhouding sowel as markverwante groei in aandeleprys oor 'n periode van tyd.

Submitted by Elba Lopes (elba.lopes@fecap.br) on 2015-12-21T14:12:16Z No. of bitstreams: 2 license_rdf: 0 bytes, checksum: d41d8cd98f00b204e9800998ecf8427e (MD5) Ana_Cristina_Russo_Nascimento.pdf: 9067895 bytes, checksum: f5d0854e1572e991b963b73b2414e563 (MD5) / Made available in DSpace on 2015-12-21T14:12:17Z (GMT). No. of bitstreams: 2 license_rdf: 0 bytes, checksum: d41d8cd98f00b204e9800998ecf8427e (MD5) Ana_Cristina_Russo_Nascimento.pdf: 9067895 bytes, checksum: f5d0854e1572e991b963b73b2414e563 (MD5) Previous issue date: 2015-08-04 / It has been a challenge for companies and scholars the issue of alignment of interest between owners and executives, called agency problems. Among its various views and administrative tools, created with the purpose of mitigating these problems the salary of the executive which can be a tool of encouragement when it is compensated in a variable way linked to purposes which set challenges to add value to the companies and thus a higher return to stockholders. There are claims in this context that the remuneration models which determine long-term goals are more appropriate, once they enable measure tangible results for organizations. Thereforeaim of this study was to investigate the relationship between the presence of variable remuneration linked to long-term goals and business performance as well as the behavior of that financial performance by business sector. One hundred fifty-fivepublicly traded companies were analyzed in 2010, which information has been extracted from References Forms (FR). The indicators used were Enterprise Value, EBITDA and Total Return to Shareholders (TRS), constructed with data provided by the Econom??tica System, for the period from 2010 to 2013. The significance of variables was tested using the method of Ordinary Least Squares (OLS), and the figure which was carried out showed statistical significance the impact on the type of remuneration on the financial performance of the sample only for the indicator Enterprise Value, the results suggested that the long-term goal linked to the remuneration can positively influence the company's performance. / A quest??o do alinhamento de interesse entre acionistas e executivos, denominada problemas do agente-principal, tem sido um desafio para empresas e estudiosos. Dentre seus diversos aspectos e ferramentas administrativas, criados com o prop??sito de mitigar esses problemas, est?? a remunera????o do executivo que pode ser instrumento de incentivo, quando paga de modo vari??vel atrelada a finalidades que estabele??am desafios para agregar valor ??s empresas e, assim, maior retorno aos acionistas. Nesse contexto, h?? afirma????es de que os modelos de remunera????o que determinam metas de longo prazo s??o mais adequados, uma vez que possibilitam aferir resultados concretos para as organiza????es. Assim, o objetivo deste estudo ?? verificar a rela????o entre a presen??a de remunera????o vari??vel atrelada a metas de longo prazo e o desempenho empresarial, bem como o comportamento do referido desempenho financeiro por setor de atividade. Foram analisadas 155 empresas de capital aberto no ano de 2010, cujas informa????es foram extra??das dos Formul??rios de Refer??ncias (FR). Os indicadores empregados foram Valor da Empresa, LAJIDA e Retorno Total ao Acionista (RTA), constru??dos com dados fornecidos pelo sistema Econom??tica, para o per??odo de 2010 a 2013. A signific??ncia das vari??veis foi testada recorrendo ao m??todo dos M??nimos Quadrados Ordin??rios (MQO), e as estimativas realizadas mostraram signific??ncia estat??stica do impacto do tipo de remunera????o sobre o desempenho financeiro da amostra apenas para o indicador Valor da Empresa, cujos resultados sugeriram que o objetivo de longo prazo vinculado ?? remunera????o pode influenciar positivamente o desempenho da empresa.

Orientation: Over the years, the increase in executive remuneration in both the private sector and state-owned entities (SOEs) has been the subject of intense discussions. The poor performance of some SOEs with highly remunerated executives begs the question whether chief executive officers (CEOs) in South African SOEs deserve the high levels of remuneration they receive. Research purpose: The main purpose of the study was to determine whether there is a relationship between CEOs’ remuneration and company performance in South Africa’s Schedule 2 SOEs. Motivation for the study: A greater understanding of the relationship between CEO remuneration and organisational performance would expand knowledge when developing optimal CEO remuneration systems to ensure sustainability of SOEs in the South African context. If a relationship exists, it could justify the high remuneration received by CEOs. Research design, approach, and method: This quantitative, longitudinal study, conducted over a nine-year period, collected secondary data from the annual reports of 18 Schedule 2 SOEs. The primary statistical techniques used in the study included were OLS multiple regression analysis and correlational analysis on a pooled dataset. Main findings/results: The primary finding was that there is a relationship between CEO remuneration and company performance (mainly an inverse relationship), with no consistent trend between the constructs. Turnover appears to be an important component, as it was the most stable measure of company performance during the study period. The results indicate that the CEOs’ remuneration continued to increase, even when the SOEs were performing poorly. Practical managerial implications: Since the study focused on the relationship between CEOs’ remuneration and company performance, it may aid policymakers in forming new rules and regulations that would help improve the country’s economic performance while attracting international investors. Contribution/value-add: The study provides new knowledge to the limited research available on SOEs in South Africa. Further, this research focused on three different components of CEOs’ remuneration, thereby shedding more light on the relationship between their remuneration and company performance. / Business Management / PhD (Management Studies)