Executive Compensation: Its Structure, Links to Company Performance, Executives' Perception, and International Differences
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Published:
Jul 29, 2019
Keywords:
executive compensation, motivation, firm performance, International comparison
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Abstract
Despite the vast amount of academic research on particular aspects of executive compensation, few studies have undertaken the subject comprehensively, combining the perspective of a firm and a manager in the International context. This study is a review of contemporary executive compensation schemes including its structure and links to company performance. Based on the literaturę of the topie, the latest market studies and industry expert interviews, this paper determines the role and effectiveness of particular components of compensation packages, taking into consideration executives’ perception, motivation, and the existing behavioral biases. Additionally, the study analyses the major differences in executive compensation policies of the listed companies in the US, the UK, Australia, Poland, and Norway. The research conclusions prove that executive compensation maximizing benefits for a firm should not only address the principal-agent problem through properly designed incentives, but also reduce a manager s propensity to excessive risk-taking. Finally, it provides practical recommendations for compensation committees how to effectively design remuneration policies.
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How to Cite
Miroński, J., & Dembowski, R. (2019). Executive Compensation: Its Structure, Links to Company Performance, Executives’ Perception, and International Differences. Journal of Management and Financial Sciences, (29), 47–72. https://doi.org/10.33119/JMFS.2017.29.3
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References
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2. Adams, J., Ineąuity in Social Exchange. [in:] Advances in Experimental Social Psychol- ogy. New York, Academic Press, 1965, pp. 267-299.
3. Baker, G.P, Jensen, M.C. &Murphy, K.J., Compensation and Incentives: Practice vs. Theory. “The Journal of Finance” 1988, 43(3), pp. 593-616.
4. Balsam, S., Fernando, G.D., Tripathy, A., The impact offirm strategy on performance measures used in executive compensation, “Journal of Business Research” 2011, Vol. 64, pp. 187-193.
5. Bebchuk, L.A., Fried, J.M., Executive Compensation as an Agency, “Journal of Eco- nomic Perspectives” 2003, 17(3), pp. 71-92.
6. Benston, G.J., The Self-Serving Management Hypothesis: Some Evidence. “Journal of Accounting and Economics” 1985, 7 (1-3), pp. 67-84.
7. Bergstresser, D., Philippon, T., CEO incentives and earnings management, “Journal of Financial Economics” 2006, Vol. 80, pp. 511-529.
8. Berkema, H., Geroski, P, Schwalbach, J., 1997. Managerial compensation, strategy and firm performance: An introduction, “International Journal of Industrial Orga- nization” 1997, Vol. 15, pp. 413-416.
9. Bruce, A., Skovoroda, R., The empirical literaturę on executivepay: Context, thepay- performance issue and futurę decisions, 2015 p. 10, http://highpaycentre.org/liles/ academic_literature_review_FINAL.pdf (retrieved on July 4, 2017).
10. Burns, N., Kedia, S., The impact of performance-based compensation on misreporting, “Journal of Financial Economics” 2006, Vol. 79, pp. 35-67.
11. Center on Executive Compensation, 2016. Pay Packages Explained. http://www. execcomp.org/Basics/Basic/Pay-Packages-Explained (retrieved on April 10, 2016).
12. Cole, S.R., The complexity of compensation contracts, “Journal of Financial Economics” 1997, Vol. 43, pp. 79-104.
13. Conyon, M.Gregg, P, Pay at the top: A study ofthe sensitivity oftop director remu- neration to company specific shocks, “National Institute Economic Review” 1994, 149(1), pp. 83-92.
14. Conyon, M.J., Schwalbach, European differences in executive pay and corporate governance, “Corporate Governance” 2000, pp. 97-114.
15. Coughlan, A.T., Schmidt, R.M., Execntive compensation, management tnrnover, and firm performance: An empirical imestigation, “Journal of Accounting and Econom- ics” 1985,7 (1-3), pp. 43-66.
16. Deloitte Executive Compensation Consulting, Motivating Top Management throngh Well-Structured Pay - Key Trends and Issues, 2013.
17. East-West Management Institute, PFS Program - Lectures on Corporate Governance. http://www.emergingmarketsesg.net/esg/wp-content/uploads/2011/01/Three-Models- of-Corporate-Governance-January-2009.pdf (retrieved on May 31, 2016).
18. EY Australia, EYPay Perspective 2015 Execntive andBoard Remnneration Report, 2015.
19. EY Norway, Executive and Board Remnneration Report, 2015.
20. EY Poland, Short-Termism in Business: Causes, Mechanics and Conseąuences, 2014.
21. EY UK, FTSE 350 Executive and Board Remnneration Report, London, 2016.
22. Fernandes, N., Ferreira, M.A., Matos, P., Murphy, K.J., Are US CEOs paid morę? New international evidence, “Review of Financial Studies” 2012,26(2), pp. 323-367.
23. Frey, B.S., On the relationship between intrinsic and extrinsic work motivation, “International Journal of Industrial Organization” 1997, Vol. 15, pp. 427-439.
24. Hall, B.J., Liebman, J.B., Are CEOs Really Paid Like Bureaucrats?, “The Quarterly Journal of Economics” 1998, 113(3), pp. 653-691.
25. Hay Group &The Wall Street Journal, The Wall Street Journal / Hay Group 2014 CEO Compensation Study. www.haygroup.com/us/wsj2014/ (retrieved on July 4, 2017).
26. Jensen, M.C., Murphy, K.J., Performance Pay and Top-Management Incentives, “Journal of Political Economy” 1990, 98(2), pp. 225-264.
27. Jensen, M.C., Zimmerman, J.L., Management Compensation and the Managerial Labor Market, “Journal of Accounting and Economics” 1985, 7 (1-3), pp. 3-9.
28. Murphy, K.J., Corporate Performance and Managerial Remnneration: An Empirical Analysis, “Journal of Accounting and Economics” 1985, 7 (1-3), pp. 11-42.
29. Murphy, K.J., Executive Compensation, University of Southern California - Marshall School of Business, 1998.
30. Pepper, A., The economicpsychology of incentives: New design principles for executive pay. London, Palgrave Macmillan 2015.
31. Pearce, J.L., Stevenson, W.B., Perry J.L., Managerial Compensation Based on Orga- nizational Performance: A Time Series Analysis ofthe Effects ofMerit Pay, “Academy of Management Journal” 1985., 28(2), pp. 261-278.
32. PwC Poland, Wynagrodzenia zarządów i rad nadzorczych największych spółek giełdowych w 2014 roku, Warszawa 2015.
33. PwC, MakingExecutive Pay Work: The Psychology of Incentives, 2012.
34. Reda, J.R, Reifler, S., Steven, M.L., The Compensation Committee Handbook, John Wiley&Sons, 2014.
35. Wiseman R.M., Gomez-Mejia L.R., A Behavioral Agency Theory ofManagerial Risk Taking, “The Academy of Management Review” 1998, 23(1), pp. 133-153.