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Stock-Based Incentives and CEO Tenure: Their Effects on Risk-Taking and Performance Extremeness
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Author: Wanrong Hou, The U. of Texas, Rio Grande Valley
Author: Steven R Lovett, The U. of Texas, Rio Grande Valley
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Integrating upper echelons theory and the study of CEO compensation, we argue that CEO tenure should moderate the relationship between stock-based incentives, risk-taking, and subsequent firm performance extremeness. We test our hypotheses with a large sample of S&P 1500 firms. Our results indicate that both stock options and restricted stock increase risk-taking, but with decreasing effect as CEO tenure increases. Both incentives also increase the likelihood of big gains for short-tenured CEOs, but again with decreasing effect as tenure increases. The moderating effect of tenure is greater on restricted stock than on stock options for both risk-taking and performance extremeness. Stock-based incentives therefore appear to be a useful solution to the agency problem for short-tenured CEOs, but much less so for long-tenured CEOs. The result is a clear recommendation for boards of directors: pay packages for short-tenured CEOs should emphasize stock-based incentives, but pay packages for long-tenured CEOs should not.
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Search Terms: upper echelons | executive compensation | CEO tenure
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Paper is No Longer Available Online: Please contact the author(s).
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CEO Stock Ownership as Incentive Benefits or Risk Bearing? the Effect of CEO Regulatory Focus
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Author: Rong Ma, Rutgers U., Camden
Author: Yen-Chih Huang, National Taichung U. of Science and Technology
Author: Cheng-Yu Lee, Southern Taiwan U. of Science and Technology
Author: Peter Wright, U. of Memphis
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Much scholarly discussion on managerial stock-based compensation and risk taking has involved the two key properties of performance pay: risk sharing and incentive benefits. Focusing on either the undesirable risk bearing property or the incentive benefits that stock-based compensation provides, scholars have offered different prediction regarding the effect of performance pay on executive risk taking. We investigate how CEO regulatory focus sheds light on CEO interpretation of their shareholdings and in turn CEO risk taking behavior. In analyses of data compiled from the public companies listed in Taiwan, we found general support for the hypotheses.
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Search Terms: CEO Regulatory Focus | CEO compensation | Risk Bearing & Incentive benefits
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Paper is No Longer Available Online: Please contact the author(s).
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Still in Control: Information Releases and CEO Stock Options
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Author: Timothy J. Quigley, U. of Georgia
Author: Timothy David Hubbard, U. of Notre Dame
Author: Andrew Ward, Lehigh U.
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While regulatory efforts have consistently attempted to limit a CEO’s power to generate self-serving outcomes, we argue that CEOs make use of particular aspects of their position – namely their control over information releases – to generate positive financial gains for themselves. Using the period following the options backdating scandal and the implementation of Sarbanes Oxley, we show that CEOs still receive stock options at suppressed strike prices, that they likely affect those strike prices by releasing negative news in the period before the option grant, and that these releases have a direct impact on the stock price of their firms. We discuss the implications and future research directions indicated by these findings.
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Search Terms: CEOs | stock options | impression management
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Paper is No Longer Available Online: Please contact the author(s).
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Overpayment and Applause? the Influence of CEO Compensation on Firm Reputation
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Author: Ann-Christine Schulz, Free U. Berlin
Author: Miriam Nicole Flickinger, Aarhus U.
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This paper investigates the impact of CEO compensation on corporate reputation. Although prior research has analyzed how CEO overpayment may affect firm outcomes, especially firm performance, results have been inconclusive. Therefore, we know relatively little about the consequences that paying excess compensation to CEOs can have for firms. Using a sample of S&P 100 firms over the period 1994-2004, we find that the extent of stock option compensation has a negative impact on corporate reputation while relative overpayment in total compensation has a weak positive effect on a firm’s reputation. Moreover, our results show that the negative impact of stock option pay is augmented if the CEO changed in the prior year and if the firm has a female CEO, while the relationship is lessened by CEO age. These findings elucidate that excessive compensation per se is not necessarily viewed critically by external stakeholders, but that highly contested components of CEO compensation such as stock option pay have a negative impact on corporate reputation, especially when CEOs generate higher public attention and scrutiny.
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Search Terms: executive compensation | overpayment | corporate reputation
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Paper is No Longer Available Online: Please contact the author(s).
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