| The Other Side Of The Coin: Principal Opportunism In Agency Relationships |
| | Dial, Jay | Case Western Reserve U. | jhd3@po.cwru.edu | (216) 368-3824 |
| | Zardkoohi, Asghar | Texas A&M U. | zardkoohi@tamu.edu | 409-845-2043 |
| | We extend the agency theory literature to incorporate the notion of opportunistic use of advantages by principals to the detriment of their agents. We propose a number of separate general categories of principal opportunism: when the principal possesses asymmetric information advantages over the agent; when very specific investments are undertaken by agents; and under certain conditions of contingent compensation. We develop a theory of principal problems akin to the efficiency wage principle, cite numerous examples in which principal problems arise, and develop empirically verifiable propositions. |
| | Keywords: Agency theory |
| Environmental, Structural and Strategic Complexity as Determinants of CEO Compensation in Multinational Corporations |
| | Ellis, Kimberly Michelle | Florida State U. | kme4821@garnet.acns.fsu.edu | (850)-644-2038 |
| | Lamont, Bruce T. | Florida State U. | blamont@garnet.acns.fsu.edu | (850)-644-9846 |
| | Sambamurthy, V. | U. of Maryland | smurthy@rhsmith.umd.edu | 301-405-8645 |
| | Although the empirical evidence produced thus far has rather consistently shown the significance of information processing-based contextual factors as important determinants of CEO pay, at least two issues remain important challenges for additional inquiry. First, while there exists ample theoretical justification that environmental, structural, and strategic factors are all likely to contribute to task complexity of CEOs and increase the information processing demands of their positions, no study has examined the effects of all three types of factors. The second issue, and possibly an outcome of the first, is that the cumulative conclusions that can be drawn about the researchers interested in CEO compensation await the efforts of future cumulative research. Our goal in this study, however, is to take some logical, initial steps toward their resolution.
We posited that the relationship between task complexity and information processing demands of CEOs and pay-performance linkages could be better understood by examining the effect of environmental structural and strategic complexity on both the level and the mix of CEO compensation in multinational corporations. We generally found this to be the case as all three forms of complexity as well as prior firm performance were found to influence the design of compensation packages in multinationals.
The contribution Submitted of our study lie in a more complete specification of the sources of information processing demands associated with internationalization that may affect CEO pay, including a direct, firm-level assessment of information related to environmental complexity. |
| | Keywords: Complexity; CEO Compensation; Multinationals |
| Incentive-Based Compensation and Firm R&D Intensity |
| | Rodriguez, Daniel | Emory U. | Daniel_Rodriguez@bus.emory.edu | (404)727-8637 |
| | This paper reports on the relationship between firm R&D intensity and incentive-based compensation. In particular, we test several
hypotheses about the extent to which research-intensive firms employ incentive-based compensation using data from detailed
executive compensation records for over 1,500 publicly traded firms from the S&P500, Midcap400, and SmallCap600 indices over
the period 1992-97. We confirm that incentive-based compensation has increased significantly over the past two decades for
research-intensive firms to a significantly greater degree than it has for less research intensive firms controlling for firm size and
industry. With our data, we are also able to distinguish between different types of incentive-based compensation. We find that all
forms of incentive-based compensation have increased over this period, but that stock options, both unrestricted and restricted have
grown the most significantly, particularly for research-intensive firms. These results are consistent with principal-agent theory,
which recommends that when managers engage in activities that are difficult to monitor, such as research and development, they
should be provided stronger incentives through their compensation contracts. |
| | Keywords: Compensation; Incentives; R&D Intensity |
| Incentive Alignment or Cooptation? Outside Director Compensation at Large, Publicly-Traded U.S. Firms |
| | Moskowitz, Gary T. | Southern Methodist U. | gmoskowi@mail.cox.smu.edu | (214)-768-1575 |
| | This paper examines the factors associated with director compensation at large, publicly traded U.S. firms. Three approaches, based on different assumptions about the nature of the board, are tested. First, directors can be viewed as acting in shareholder interests; under this approach director pay should be related to corporate performance and to the tradeoff between managerial incentive alignments and board monitoring. A second approach suggests that directors are pawns of managers and that board pay is related to managerial cooptation. A third method is to pay directors solely for the time they spend attending to board matters. The empirical results support, to differing extents, all three approaches. Director pay is found to be positively related to accounting returns, CEO overcompensation, and the number of board meetings, and negatively related to the presence of a 5% director. |
| | Keywords: Director compensation; Corporate governance; Agency theory |
| The Impact of Capital Markets on Compensation Incentives, Organizational Slack, and Firm Innovation |
| | Young, Michael N. | Chinese U. of Hong Kong | michaely@baf.msmail.cuhk.edu.hk | (852) 2609 7905 |
| | This paper models and tests the impact of differences in capital markets on organizational slack and the innovative capacity of firms. The paper also examines the role of the board of directors in setting compensation packages that partially mediate the relationship between markets and the capacity for innovation. The model is tested with structural equation modeling.
There are several interesting findings: First, there are found te be statistically significant differences in the governance relationships between NYSE and NASDAQ traded firms. Most notably, market and governance variables respond best to research intensity as a strategy variable for NASDAQ traded firms, while the same variables respond best to capital intensity as a dependent variable for NYSE traded firms. Second, increased stock visibility is found to be negatively associated with organizational slack and positively associated with industry-adjusted capital intensity for NYSE firms. Third, increased stock visibility is found to be associated with research intensity for NASDAQ traded firms. Finally, the incentive compensation structure of the CEO is found to partially mediate the relationship between capital markets and research intensity and capital intensity in ways that run counter to what the standard version of the dominant governance theory, agency theory, would predict. |
| | Keywords: Stock Exchange Listing; Corporate Governance; Agency Theory |