ORCID Profile
0000-0002-3646-4320
Current Organisation
University of Adelaide
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Small Business Management | Applied Economics | Agricultural Economics
Publisher: Virtus Interpress
Date: 2011
DOI: 10.22495/COCV8I3C5P5
Abstract: Criticism by the Administration at the height of the global financial crisis of ‘excessive’ company bonuses rekindles debate on the link between executive pay and firm performance. We model the relationship between realized CEO pay and an earnings-adjusted barrier call as the dependent variable. We employ both externally- and internally-derived metrics of target financial performance. Pay components are found strongly interrelated. Salary sensitivities to the dependent variable are broadly consistent with determination of a reservation wage set by the executive labor market, while annual bonuses are paid for expected above-target performance, but are also capped. Long-term incentive plans are used to mitigate noise in earnings only when above-target performance is expected. Hence, we find no evidence of excessive’ bonuses, at least during the interval ending in fiscal 2005. Rather, we document evidence that the ‘excessiveness’ may in fact be present in salaries.
Publisher: Elsevier BV
Date: 2006
DOI: 10.2139/SSRN.891591
Publisher: Global Business Publications
Date: 12-2012
DOI: 10.17578/16-3/4-3
Publisher: Elsevier BV
Date: 10-2019
Publisher: Elsevier BV
Date: 06-2018
Publisher: Elsevier BV
Date: 2016
DOI: 10.2139/SSRN.3005077
Publisher: Informa UK Limited
Date: 19-04-2021
Publisher: Springer Science and Business Media LLC
Date: 14-06-2015
Publisher: Elsevier BV
Date: 2008
DOI: 10.2139/SSRN.1097396
Publisher: Virtus Interpress
Date: 2008
DOI: 10.22495/COCV6I1P12
Abstract: Schaefer (1998) and Baker and Hall (2004) posit a firm size effect for regular executive compensation but not specifically for executive stock option grants. They propose an inverse relation between pay-performance sensitivity and firm size along with a positive relation between the marginal productivity of executive effort and firm size. The product of pay-performance sensitivity and executive productivity is „incentive strength‟. They find a weakly positive association between incentive strength and firm size. We substitute Hall and Murphy‟s (2002) pay-performance sensitivity metric to detect a firm size effect in CEO stock option grants. After adjusting for small-firm risk aversion and private ersification „clienteles‟, we document evidence of a residual small-firm effect impacting on incentive strength principally through grant size. Given lower small-firm deltas, grant size appears to have been increased by compensation committees to ensure small-firm CEOs are not under-compensated relative to their large-firm counterparts. We also find that firm complexity influences pay-performance sensitivity as well, but not labor productivity (proxying for CEO productivity). No evidence is found that firm smallness and complexity impact on labor productivity. However, we empirically confirm a negative relation between pay-performance sensitivity and firm smallness and, by implication, firm complexity.
Publisher: Elsevier BV
Date: 2006
DOI: 10.2139/SSRN.876395
Publisher: Elsevier BV
Date: 2007
DOI: 10.2139/SSRN.968269
Publisher: Virtus Interpress
Date: 2006
DOI: 10.22495/COCV3I2P7
Abstract: This study examines interactions between pre-award ESOP restrictive conditions and award discounts remiums that characterized executive stock option awards in Australia from the mid-1980s to 2000. Shareholder wealth effects at award suggest that (i) shareholders generally do not gain from offering discounts because associated value increments do not exceed the cost of the discount, (ii) premium awards coupled with exercise restrictions appear to be used to ameliorate the risk of CEO opportunism associated with irregular awards, and (iii) shareholders suffer a wealth decrement when premium awards are used to ameliorate the disinvestment incentive of inferior CEO dilution protection. The second of these findings implies risk of CEO opportunism. A major implication is that award discounts remiums are used to modify the conditions of pre-existing ESOPs that presumably are dated and no longer optimal for addressing current incentive problems. Analyses of the optimality of award discounts remiums should take this into account.
Publisher: Virtus Interpress
Date: 2007
DOI: 10.22495/COCV4I3P2
Abstract: We document empirical evidence that bidders tailor their takeover strategy when facing entrenched target managers. Key elements of a takeover strategy comprise the toehold purchase and the initial bid premium. We find that toeholds are acquired in cognizance of the principal outsider and target management block. Bidders’ free rider cost savings are measured by the product of the toehold and the initial bid premium. Several relationships are identified. Initial bid premiums for targets characterized by entrenchment are comparatively low and result in low free rider benefits to bidders. To avoid overpayment, bidders do not compensate entrenched managers for lost private benefits. Instead, in entrenchment scenarios toeholds are optimized with respect to the principal outsider as well as the target management block in order to create a foothold that neutralizes entrenchment. At the median toeholds match the spread between the principal outsider and the target management block in entrenchment scenarios, are about double the spread for shareholder-aligned targets and much smaller for owner-managed targets. Takeovers of owner-managed targets rely more on a higher offer price.
Publisher: Elsevier BV
Date: 2004
DOI: 10.2139/SSRN.492462
Publisher: Elsevier BV
Date: 2009
DOI: 10.2139/SSRN.1362412
Publisher: Elsevier BV
Date: 06-2017
Publisher: Elsevier BV
Date: 2009
DOI: 10.2139/SSRN.1361264
Publisher: Elsevier BV
Date: 2004
DOI: 10.2139/SSRN.492723
Publisher: Elsevier BV
Date: 2011
DOI: 10.2139/SSRN.1786332
Publisher: Virtus Interpress
Date: 2010
DOI: 10.22495/CBV6I1ART1
Abstract: This study tests the Hall and Murphy (2000, 2002) propositions using a dataset wherein in-the money and out-of-the-money option grants are just as prevalent as at-the-money option grants. The choice of grant size and exercise price in determining optimal pay-performance sensitivity, reveals an over prescription of at-the-money options at the expense of in-the-money options, particularly for high risk-averse CEOs. Also, pay-performance sensitivity is found unexpectedly negatively related to the exercise price, which is attributed to an equally unexpected inverse relation between risk aversion and grant size.
Publisher: Virtus Interpress
Date: 2009
DOI: 10.22495/COCV7I2P3
Abstract: We document the first evidence of a structure of timing returns, award discounts remia and CEO dilution costs relative to shareholders set at award and before the CEO invests marginal effort. All three factors affect CEOs’ effective exercise price and hence incentive to expend marginal effort. Exercised options, which exhibit the highest CEO and shareholder returns, are characterized by CEO acceptance of high dilution cost and high sensitivity to award premiums. CEO and shareholder returns for lapsed options and annual/biannual awards show high dependency on the dilution cost factor. Irregular awards are characterized by active pre-effort positioning by shareholders to reduce CEO opportunism.
Publisher: Elsevier BV
Date: 06-2022
Publisher: Virtus Interpress
Date: 2010
DOI: 10.22495/COCV7I4C1P4
Abstract: Criticism by the Administration at the height of the global financial crisis of „excessive‟ company bonuses rekindles debate on the link between executive pay and firm performance. We model the relationship between realized CEO pay and an earnings-adjusted barrier call as the dependent variable. We employ both externally- and internally-derived metrics of target financial performance. Pay components are found strongly interrelated. Salary sensitivities to the dependent variable are broadly consistent with determination of a reservation wage set by the executive labor market, while annual bonuses are paid for expected above-target performance, but are also capped. Long-term incentive plans are used to mitigate noise in earnings only when above-target performance is expected. Hence, we find no evidence of „excessive‟ bonuses, at least during the interval ending in fiscal 2005. Rather, we document evidence that the „excessiveness‟ may, in fact, be present in salaries.
Publisher: Emerald
Date: 30-07-2018
Abstract: The authors study stock and option grants around abrupt performance declines for continuing CEOs and find that firms facing abrupt financial declines grant more options than stock, while firms facing operational decline grant more stock than options. Firms making these adjustments just prior to performance declines outperform those that do not for three years following the decline and are less likely to engage in asset restructuring. To establish causality, the authors exploit compensation changes instigated by FAS 123R accounting regulation in 2005 that mandated stock option expensing. The result is robust to numerous tests, including rebalancing of incentives and CEO turnover. The paper aims to discuss these issues. To establish causality, the authors exploit compensation changes instigated by FAS 123R accounting regulation in 2005 that mandated stock option expensing. Firms making these adjustments just prior to performance declines outperform those that do not for three years following the decline and are less likely to engage in asset restructuring. The result is robust to numerous tests, including rebalancing of incentives and CEO turnover. Several studies examine the relationship between poor performance and compensation of newly appointed CEOs. But firms regularly employ retention or incentive plans when experiencing distress to prevent critical employees from leaving when they are most needed (Goyal and Wang, 2017). Employee turnover results in a loss of continuity coupled with high search and training costs for replacement personnel. Beneish et al. (2017) find that 57 percent of CEOs associated with intentional misreporting retain their jobs, implying the costs of removing CEOs is high, especially if the incumbent CEO has a strong track record relative to industry peers prior to the period before the misreporting begins. The board fires the CEO if future firm value under the CEO is expected to be lower than under the best alternative CEO less adjustment costs (e.g. search costs, severance pay).
Publisher: Elsevier BV
Date: 02-2019
Publisher: Elsevier BV
Date: 2017
DOI: 10.2139/SSRN.3005080
Publisher: Elsevier BV
Date: 03-2022
Publisher: Elsevier BV
Date: 10-2020
Publisher: Virtus Interpress
Date: 2011
DOI: 10.22495/COCV9I1ART9
Abstract: Using a unique data set, we test theoretical propositions relating to grant size and exercise price in determination of optimal executive compensation. For Hall and Murphy, pay-performance sensitivity does not behave as predicted with respect to CEO risk aversion and ersification, but the latter supports observed grant size while ATM grants exhibit positive abnormal returns as predicted. Consistent with Choe, exercise price is found inversely related to leverage. The unexpected positive relation between grant size and stock volatility is conjectured driven by CEOs’ influencing large grants, which are found associated with weak corporate governance but ameliorated by outside directors.
Publisher: Virtus Interpress
Date: 2005
DOI: 10.22495/COCV2I3P10
Abstract: We document a structure of pre-effort conditions associated with ESOPs. Since we can observe shareholder returns at award we infer incentive effects in a setting where premium and discounted executive stock options are regularly awarded. Discounted (premium) awards are associated with the highest (lowest) exercise rates, implying a successful incentive (disincentive) effect. Exercise restrictions (comprising hurdles and vesting restrictions) necessarily lower exercise rates, but may be preferred in combination with a discounted or premium award. Typically, a discount choice is associated with hurdles but not vesting restrictions. Empirically, shareholders benefit most from regular awards which are discounted and do not have hurdle price restrictions. Shareholders also benefit from hurdle provisions in irregular awards which may expose shareholders to CEO opportunism.
Start Date: 2022
End Date: 2023
Funder: Department of Agriculture, Water and the Environment
View Funded ActivityStart Date: 2009
End Date: 2014
Funder: Australian Research Council
View Funded ActivityStart Date: 09-2009
End Date: 01-2014
Amount: $99,982.00
Funder: Australian Research Council
View Funded Activity