Executive compensation in banks: insights from CEO equity incentives and securitization transactions

This paper investigates whether CEO equity incentives promote risk-taking activities in the financial industry. Prior research shows that, during the recent credit crisis, banks whose CEOs had high equity incentives performed significantly worse than banks whose CEOs had low equity incentives. A possible explanation for this result is that the incentive to boost stock price induced CEOs to take risks that turned out to be extremely costly. Focusing on securitization transactions that were among the fundamental causes of the financial crisis and using a sample of US financial institutions, the paper provides evidence that banks whose CEOs had high equity incentives engaged in securitization transactions to a greater extent than did financial institutions guided by CEOs with low equity incentives. Moreover, the paper shows that CEOs with high equity incentives securitized riskier loans than did CEOs with low incentives. This study helps to clarify the role of equity-based compensation in promoting risk-taking behaviors in banks.     

CEO successor compensation: outside versus inside successions

We propose that outside CEO candidates will have greater bargaining power than insiders. As a result, outside CEO successors will likely receive greater total compensation than inside CEO successors. Outside successors, meantime, pose more risk to the hiring firm than inside successors due to higher information asymmetry. As a result, outside successor compensation packages are tilted towards more performance-related pay-at-risk, while inside successor packages have a higher percentage in salary. In addition, outside successors may want to utilize the structure of their compensation at their previous firm in their new contracts. Using a sample of 99 firms with outside successors who were not CEO in their prior firms, matched by industry and size to firms that hired inside candidates, we find evidence supporting these hypotheses.     

The influence of CEO equity incentives on licensing

In a study of life science firms, we find that, in accordance with predictions drawn from agency theory and behavioral agency theory, CEO stock ownership is negatively associated with licensing while CEO stock options are positively associated with licensing. Furthermore, by combining theoretical insights from the capabilities literature with both agency theory and behavioral agency theory, we predict that a key measure of capabilities in the licensing context—a firm's alliance experience—significantly influences the ways in which CEO equity incentives impact licensing. More specifically, we find that, in accordance with our theoretical predictions, alliance experience positively (negatively) moderates the relationship between CEO stock ownership (CEO stock options) and licensing. Our study contributes to the wider literature on the determinants of licensing by examining whether licensing is sensitive to CEO equity incentives. We also extend the capabilities literature on licensing by examining the contrasting influences of a firm's alliance experience on the relationship between CEO equity incentives and licensing. Our findings also inform behavioral agency-based research on the effects of equity incentives by highlighting the usefulness of a capabilities perspective in augmenting our understanding of the behavioral role of CEO equity incentives.     

The cost of CEO duality: Evidence from French leadership compensation

This paper aims to provide a detailed analysis of the relationship between board leadership structures and executive compensation. According to agency theory, the combined position of CEO and Chairperson of the Board (COB) entails greater compensation for the CEO in order to reduce conflicts of interest. In the literature, combined board structure is generally considered to generate additional costs for companies. However, the choice of two separate structures implies the payment of incentive compensation for the COB in addition to that defined for the CEO. This paper investigates the financial cost of duality when compensation packages are set for both leaders. Our results suggest that although combined board structure is associated with higher incentive compensation for the CEO, the overall compensation cost to the company is no higher when the chairperson's compensation is considered.     

Agency conflicts,executive compensation regulations and CEO pay-performance sensitivity: evidence from Sweden

Based on a unique country set up with concentrated ownership of firms, strong representation of major shareholders on boards and one of the highest percentages of firms with dual-class shares worldwide I study CEO pay-performance sensitivity in Swedish listed firms in the years 2001–2013. Focusing on Type II agency conflict, I find that that pay-performance sensitivity in family-controlled firms with family CEOs is significantly lower than in other types of firms, and that dual-class firms have significantly lower sensitivity of pay to accounting performance than non-dual-class firms. The results suggest that in firms with type II agency conflicts compensation practices may be driven either by family ties or by the power preferences of the controlling shareholder that uses compensation to align CEO’s interest with his/her will rather than with financial performance. The study also documents that the link between CEO pay and performance disappears in the 2010–2013 period following the implementation of the European Recommendations regarding executive compensation. This finding is in contrast to the stipulated goal of the European Commission, ‘to ensure pay for performance’ (European Commission 2009).     

CEO compensation and firm competitive behavior: Empirical evidence from the U.S. pharmaceutical industry

Executive compensation is one of the most critically evaluated aspects of a firm. Driving this attention is the debate into what exactly are the consequences of executive pay. Since a majority of prior compensation research has aggregated industries into a single omnibus sample, it has been difficult to detect compensation effects that are likely industry specific. Accordingly, we focus on a high technology industry and examine how CEO incentive compensation affects firm competitive behavior. Utilizing a sample of U.S. pharmaceutical firms, we find that both short- and long-term incentives of a CEO are positively related to firm competitive aggressiveness. Moreover, our results show a positive relationship between long-term incentives of the top executive and the diversity of competitive moves undertaken by the firm. This study contributes to technology management, compensation, and strategy literatures and generates interesting possibilities for future research.     

The configurational effects of board monitoring and the institutional environment on CEO compensation: a country-level fuzzy-set analysis

This study examines the causal complexity of how the effectiveness of board monitoring influences CEO compensation around the world. Previous research drawing from the managerial power theory and ‘increased career risks’ perspective offer alternative arguments for how low and high levels of effective monitoring by boards of directors influence CEO compensation. Adopting a configurational approach using fuzzy-set qualitative comparative analysis, we explore the idea that there are multiple causal paths leading to high levels of CEO compensation, such that theoretical logic from both theories may be relevant contingent upon the institutional environment in which the relationship is embedded. Our findings in a sample of 38 countries suggest that high CEO compensation is an outcome of both the presence and absence of effective board monitoring depending upon how it combines with minority investor protections and the cultural dimensions of power distance, uncertainty avoidance, and individualism, as well as the overall stock market value. Specifically, in countries with high levels of effective board monitoring, high CEO compensation will be more likely when the country’s culture is high in uncertainty avoidance, low in power distance and when there are strong protections for minority investors. Whereas in countries with low levels of effective board monitoring, high CEO compensation will be more likely when power distance is high and uncertainty avoidance is low and when there are weak protections for minority investors. Our country-level study highlights the theoretical strengths of employing a configurational approach to explore the complex interrelationships of governance mechanisms and the contexts in which they manifest.     

Using incentives to address cannibalization

In a decentralized multi-product firm, different products within the firm sometimes compete with one another for the same customers. This paper proposes managing such cannibalistic behavior with incentives. Designing the appropriate incentives requires detailed information on how the sales of one product impact the profitability of other products. As this paper shows, the only additional information required is the second choice preferences of buyers. Drawing on successful development by General Motors, this paper shows how this information can be collected and used to develop cannibalization incentives. While developed for the automotive industry, this approach is applicable across industries.     

Friend or Foe? CEO gender,political ideology,and gender-pay disparities in executive compensation

Do female CEOs reduce gender-pay disparities in top management teams (TMTs)? Some scholars draw on social identity theory to argue that, as individuals tend to identify with and support their in-groups, appointing a female corporate leader (i.e., CEO) will mitigate the gender-pay gap among executives. Yet, others draw on the queen-bee syndrome to postulate that some female CEOs may rather strengthen gender-pay disparities in upper echelons – by favoring out-groups (male) more than their in-groups (female). We bring together these opposing theoretical arguments to develop a ‘beyond CEO gender’ perspective, arguing that the effects of CEO gender on TMT gender-pay disparities should be considered in conjunction with the corporate leaders' values – as reflected by their political ideology. Our research demonstrates that conservative-female CEOs compensate female (versus male) executives lower compared to all other CEO gender-ideology categories (i.e., female-liberal CEOs, male-liberal CEOs, and male-conservative CEOs). Overall, our work contributes to theory on the CEO-TMT interface by highlighting the role of the CEO as the ‘architect’ of executive remuneration.     

How to survive a new CEO

A new CEO means everyone in the organization is now a new hire--an unknown entity that must prove he or she can and will enthusiastically, tirelessly support the CEO's agenda. Those who want to stay on the payroll must avoid a business-as-usual attitude and demonstrate that they share the CEO's dedication to change. If you're in a staff job, it's important to show you're essential to the new regime, quickly and convincingly. Some important steps to consider as you plan for the transition include: Do your home-work; anticipate the CEO's needs; be supportive and nonpolitical; be realistic with your direct reports; and appear poised to leave willingly and quietly--and you may not have to.     

The bike sharing rebalancing problem: Mathematical formulations and benchmark instances

Bike sharing systems offer a mobility service whereby public bicycles, located at different stations across an urban area, are available for shared use. These systems contribute towards obtaining a more sustainable mobility and decreasing traffic and pollution caused by car transportation. Since the first bike sharing system was installed in Amsterdam in 1965, the number of such applications has increased remarkably so that hundreds of systems are now operating all over the world.In a bike sharing system, users can take a bicycle from a station, use it to perform a journey and then leave it at a station, not necessarily the same one of departure. This behavior typically leads to a situation in which some stations become full and others are empty. Hence, a balanced system requires the redistribution of bicycles among stations.In this paper, we address the Bike sharing Rebalancing Problem (BRP), in which a fleet of capacitated vehicles is employed in order to re-distribute the bikes with the objective of minimizing total cost. This can be viewed as a special one-commodity pickup-and-delivery capacitated vehicle routing problem. We present four mixed integer linear programming formulations of this problem. It is worth noting that the proposed formulations include an exponential number of constraints, hence, tailor-made branch-and-cut algorithms are developed in order to solve them.The mathematical formulations of the BRP were first computationally tested using data obtained for the city of Reggio Emilia, Italy. Our computational study was then extended to include bike sharing systems from other parts of the world. The information derived from the study was used to build a set of benchmark instances for the BRP which we made publicly available on the web. Extensive experimentation of the branch-and-cut algorithms presented in this paper was carried out and an interesting computational comparison of the proposed mathematical formulations is reported. Finally, several insights on the computational difficulty of the problem are highlighted.     

Using CEO Succession to Integrate Acquired Organizations: A Contingency Analysis

The study proposes that organizations engaged in related acquisition may encourage CEO succession as a mechanism for integrating acquired organizations. Further, we suggest that the risk of CEO succession at the time of acquisition will vary based on the need for integrative action and the power of acquired organizations. Results show that CEO succession is more likely when the participating organizations have incompatible types of ownership and when acquired CEOs have longer tenure than their counterparts. Conversely, the probability of CEO succession is lower among larger acquired organizations. Performance of the acquired organization does not affect the relationship between related acquisition and CEO succession.     

CEO humility,narcissism and firm innovation: A paradox perspective on CEO traits

We examine how two seemingly contradictory yet potentially complementary CEO traits—humility and narcissism—interact to affect firm innovation. We adopt a paradox perspective and propose that individuals can have paradoxical traits and that, in particular, humility and narcissism can coexist harmoniously, especially among the Chinese, whose philosophical tradition embraces paradoxical thinking and behaving. CEOs that are both humble and narcissistic are hypothesized to be more likely to have socialized charisma, to cultivate an innovative culture, and to deliver innovative performance. Two studies using multisource data involving 63 CEOs, 328 top managers, and 645 middle managers in Study 1 and 143 CEOs and 190 top managers in Study 2 support the hypotheses and point to new directions for studying CEO traits and their effects on firm outcomes.     

CEO self-discipline in power use: A key moderator for the effect of CEO power

The effect of CEO power depends ultimately on how it is used (i.e., a CEO’s approach to power use), which may vary from one CEO to another. Notwithstanding extensive research on the effect of CEO power on organizational outcomes, researchers have thus far paid very limited attention to how the effect depends on individual differences. In this study I propose a new construct of CEO self-discipline in power use—defined as a CEO’s appeared conformance to the prescribed leadership norms (in particular, norms regarding how leaders should use their power)—and examine how it moderates the effect of CEO power. With a longitudinal dataset from the U.S. computer hardware and software industries, I found that CEO self-discipline in power use weakened the positive effect of CEO power on performance extremeness and improved the effect of CEO power on firm performance.     

Transition to capitation. Aligning incentives for success

Horror stories abound about providers that have failed to modify their incentive systems and have exhausted their annual capitation budget in the first six months of the plan year. Aligning the business strategy and financial incentives in advance is the best way to ensure that your integrated delivery system's transition to capitation is a success story. Rarely are physicians or hospitals with experience limited to the fee-for-service arena prepared to jump into a managed care or capitated compensation system. The transition can be eased by implementing a "shadow" capitation or similar arrangement that will test physician performance under a risk arrangement in advance. The information can be used to restructure the compensation system to ensure that the behaviors being encouraged will promote successful care and fiscal management.