Essays on behavioral aspects of the design and disclosure of compensation contracts

This thesis consists of four essays on the design and disclosure of compensation contracts. Essays 1, 2 and 3 focus on behavioral aspects of mandatory compensation disclosure rules and of contract negotiations in agency relationships. The three experimental studies develop psychology- based theory and present results that deviate from standard economic predictions. Furthermore, the results of Essay 1 and 2 also have implications for firms’ discretion in how to communicate their top management’s incentives to the capital market. Essay 4 analyzes the role of fairness perceptions for the evaluation of executive compensation. For this purpose, two surveys targeting representative eligible voters as well as investment professionals were conducted. Essay 1 investigates the role of the detailed ‘Compensation Discussion and Analysis’, which is part of the Security and Exchange Commission’s 2006 regulation, on investors’ evaluations of executive performance. Compensation disclosure complying with this regulation clarifies the relationship between realized reported compensation and the underlying performance measures and their target achievement levels. The experimental findings suggest that the salient presentation of executives’ incentives inherent in the ‘Compensation Discussion and Analysis’ makes investors’ performance evaluations less outcome dependent. Therefore, investors’ judgment and investment decisions might be less affected by noisy environmental factors that drive financial performance. The results also suggest that fairness perceptions of compensation contracts are essential for investors’ performance evaluations in that more transparent disclosure increases the perceived fairness of compensation and the performance evaluation of managers who are not responsible for a bad financial performance. These results have important practical implications as firms might choose to communicate their top management’s incentive compensation more transparently in order to benefit from less volatile expectations about their future performance. Similar to the first experiment, the experiment described in Essay 2 addresses the question of more transparent compensation disclosure. However, other than the first experiment, the second experiment does not analyze the effect of a more salient presentation of contract information but the informational effect of contract information itself. For this purpose, the experiment tests two conditions in which the assessment of the compensation contracts’ incentive compatibility, which determines executive effort, is either possible or not. On the one hand, the results suggest that the quality of investors’ expectations about executive effort is improved, but on the other hand investors might over-adjust their prior expectations about executive effort if being confronted with an unexpected financial performance and under-adjust if the financial performance confirms their prior expectations. Therefore, in the experiment, more transparent compensation disclosure does not lead to more correct overall judgments of executive effort and to even lower processing quality of outcome information. These results add to the literature on disclosure which predominantly advocates more transparency. The findings of the experiment however, identify decreased information processing quality as a relevant disclosure cost category. Firms might therefore carefully evaluate the additional costs and benefits of more transparent compensation disclosure. Together with the results from the experiment in Essay 1, the two experiments on compensation disclosure imply that firms should rather focus on their discretion how to present their compensation disclosure to benefit from investors’ improved fairness perceptions and their spill-over on performance evaluation. Essay 3 studies the behavioral effects of contextual factors in recruitment processes that do not affect the employer’s or the applicant’s bargaining power from a standard economic perspective. In particular, the experiment studies two common characteristics of recruitment processes: Pre-contractual competition among job applicants and job applicants’ non-binding effort announcements as they might be made during job interviews. Despite the standard economic irrelevance of these factors, the experiment develops theory regarding the behavioral effects on employees’ subsequent effort provision and the employers’ contract design choices. The experimental findings largely support the predictions. More specifically, the results suggest that firms can benefit from increased effort and, therefore, may generate higher profits. Further, firms may seize a larger share of the employment relationship’s profit by highlighting the competitive aspects of the recruitment process and by requiring applicants to make announcements about their future effort. Finally, Essay 4 studies the role of fairness perceptions for the public evaluation of executive compensation. Although economic criteria for the design of incentive compensation generally do not make restrictive recommendations with regard to the amount of compensation, fairness perceptions might be relevant from the perspective of firms and standard setters. This is because behavioral theory has identified fairness as an important determinant of individuals’ judgment and decisions. However, although fairness concerns about executive compensation are often stated in the popular media and even in the literature, evidence on the meaning of fairness in the context of executive compensation is scarce and ambiguous. In order to inform practitioners and standard setters whether fairness concerns are exclusive to non-professionals or relevant for investment professionals as well, the two surveys presented in Essay 4 aim to find commonalities in the opinions of representative eligible voters and investments professionals. The results suggest that fairness is an important criterion for both groups. Especially, exposure to risk in the form of the variable compensation share is an important criterion shared by both groups. The higher the assumed variable share, the higher is the compensation amount to be perceived as fair. However, to a large extent, opinions on executive compensation depend on personality characteristics, and to some extent, investment professionals’ perceptions deviate systematically from those of non-professionals. The findings imply that firms might benefit from emphasizing the riskiness of their managers’ variable pay components and, therefore, the findings are also in line with those of Essay 1.

Systematic analysis of factors associated with progression and regression of ulcerative colitis in 918 patients.

BACKGROUND Studies that systematically assess change in ulcerative colitis (UC) extent over time in adult patients are scarce. AIM To assess changes in disease extent over time and to evaluate clinical parameters associated with this change. METHODS Data from the Swiss IBD cohort study were analysed. We used logistic regression modelling to identify factors associated with a change in disease extent. RESULTS A total of 918 UC patients (45.3% females) were included. At diagnosis, UC patients presented with the following disease extent: proctitis [199 patients (21.7%)], left-sided colitis [338 patients (36.8%)] and extensive colitis/pancolitis [381 (41.5%)]. During a median disease duration of 9 [4-16] years, progression and regression was documented in 145 patients (15.8%) and 149 patients (16.2%) respectively. In addition, 624 patients (68.0%) had a stable disease extent. The following factors were identified to be associated with disease progression: treatment with systemic glucocorticoids [odds ratio (OR) 1.704, P = 0.025] and calcineurin inhibitors (OR: 2.716, P = 0.005). No specific factors were found to be associated with disease regression. CONCLUSIONS Over a median disease duration of 9 [4-16] years, about two-thirds of UC patients maintained the initial disease extent; the remaining one-third had experienced either progression or regression of the disease extent.

Variability of daily winter wind speed distribution over Northern Europe during the past millennium in regional and global climate simulations

We analyse the variability of the probability distribution of daily wind speed in wintertime over Northern and Central Europe in a series of global and regional climate simulations covering the last centuries, and in reanalysis products covering approximately the last 60 years. The focus of the study lies on identifying the link of the variations in the wind speed distribution to the regional near-surface temperature, to the meridional temperature gradient and to the North Atlantic Oscillation. Our main result is that the link between the daily wind distribution and the regional climate drivers is strongly model dependent. The global models tend to behave similarly, although they show some discrepancies. The two regional models also tend to behave similarly to each other, but surprisingly the results derived from each regional model strongly deviates from the results derived from its driving global model. In addition, considering multi-centennial timescales, we find in two global simulations a long-term tendency for the probability distribution of daily wind speed to widen through the last centuries. The cause for this widening is likely the effect of the deforestation prescribed in these simulations. We conclude that no clear systematic relationship between the mean temperature, the temperature gradient and/or the North Atlantic Oscillation, with the daily wind speed statistics can be inferred from these simulations. The understand- ing of past and future changes in the distribution of wind speeds, and thus of wind speed extremes, will require a detailed analysis of the representation of the interaction between large-scale and small-scale dynamics.

The Effects of Density, Spatial Pattern, and Competitive Symmetry on Size Variation in Simulated Plant Populations

Patterns of size inequality in crowded plant populations are often taken to be indicative of the degree of size asymmetry of competition, but recent research suggests that some of the patterns attributed to size‐asymmetric competition could be due to spatial structure. To investigate the theoretical relationships between plant density, spatial pattern, and competitive size asymmetry in determining size variation in crowded plant populations, we developed a spatially explicit, individual‐based plant competition model based on overlapping zones of influence. The zone of influence of each plant is modeled as a circle, growing in two dimensions, and is allometrically related to plant biomass. The area of the circle represents resources potentially available to the plant, and plants compete for resources in areas in which they overlap. The size asymmetry of competition is reflected in the rules for dividing up the overlapping areas. Theoretical plant populations were grown in random and in perfectly uniform spatial patterns at four densities under size‐asymmetric and size‐symmetric competition. Both spatial pattern and size asymmetry contributed to size variation, but their relative importance varied greatly over density and over time. Early in stand development, spatial pattern was more important than the symmetry of competition in determining the degree of size variation within the population, but after plants grew and competition intensified, the size asymmetry of competition became a much more important source of size variation. Size variability was slightly higher at higher densities when competition was symmetric and plants were distributed nonuniformly in space. In a uniform spatial pattern, size variation increased with density only when competition was size asymmetric. Our results suggest that when competition is size asymmetric and intense, it will be more important in generating size variation than is local variation in density. Our results and the available data are consistent with the hypothesis that high levels of size inequality commonly observed within crowded plant populations are largely due to size‐asymmetric competition, not to variation in local density.

Volcanic terrain and the possible periglacial formation of "excess ice" at the mid-latitudes of Utopia Planitia, Mars

At the mid-latitudes of Utopia Planitia (UP), Mars, a suite of spatially-associated landforms exhibit geomorphological traits that, on Earth, would be consistent with periglacial processes and the possible freeze-thaw cycling of water. The suite comprises small-sized polygonally-patterned ground, polygon-junction and -margin pits, and scalloped, rimless depressions. Typically, the landforms incise a dark-toned terrain that is thought to be ice-rich. Here, we investigate the dark-toned terrain by using high resolution images from the HiRISE as well as near-infrared spectral-data from the OMEGA and CRISM. The terrain displays erosional characteristics consistent with a sedimentary nature and near-infrared spectra characterised by a blue slope similar to that of weathered basaltic-tephra. We also describe volcanic terrain that is dark-toned and periglacially-modified in the Kamchatka mountain-range of eastern Russia. The terrain is characterised by weathered tephra inter-bedded with snow, ice-wedge polygons and near-surface excess ice. The excess ice forms in the pore space of the tephra as the result of snow-melt infiltration and, subsequently, in-situ freezing. Based on this possible analogue, we construct a three-stage mechanism that explains the possible ice-enrichment of a broad expanse of dark-toned terrain at the mid-latitudes of UP: (1) the dark-toned terrain accumulates and forms via the regional deposition of sediments sourced from explosive volcanism; (2) the volcanic sediments are blanketed by atmospherically-precipitated (H2O) snow, ice or an admixture of the two, either concurrent with the volcanic-events or between discrete events; and, (3) under the influence of high obliquity or explosive volcanism, boundary conditions tolerant of thaw evolve and this, in turn, permits the migration, cycling and eventual formation of excess ice in the volcanic sediments. Over time, and through episodic iterations of this scenario, excess ice forms to decametres of depth. (C) 2015 Elsevier B.V. All rights reserved.

Scientific drilling projects in ancient lakes: Integrating geological and biological histories

Sedimentary sequences in ancient or long-lived lakes can reach several thousands of meters in thickness and often provide an unrivalled perspective of the lake's regional climatic, environmental, and biological history. Over the last few years, deep-drilling projects in ancient lakes became increasingly multi- and interdisciplinary, as, among others, seismological, sedimentological, biogeochemical, climatic, environmental, paleontological, and evolutionary information can be obtained from sediment cores. However, these multi- and interdisciplinary projects pose several challenges. The scientists involved typically approach problems from different scientific perspectives and backgrounds, and setting up the program requires clear communication and the alignment of interests. One of the most challenging tasks, besides the actual drilling operation, is to link diverse datasets with varying resolution, data quality, and age uncertainties to answer interdisciplinary questions synthetically and coherently. These problems are especially relevant when secondary data, i.e., datasets obtained independently of the drilling operation, are incorporated in analyses. Nonetheless, the inclusion of secondary information, such as isotopic data from fossils found in outcrops or genetic data from extant species, may help to achieve synthetic answers. Recent technological and methodological advances in paleolimnology are likely to increase the possibilities of integrating secondary information. Some of the new approaches have started to revolutionize scientific drilling in ancient lakes, but at the same time, they also add a new layer of complexity to the generation and analysis of sediment-core data. The enhanced opportunities presented by new scientific approaches to study the paleolimnological history of these lakes, therefore, come at the expense of higher logistic, communication, and analytical efforts. Here we review types of data that can be obtained in ancient lake drilling projects and the analytical approaches that can be applied to empirically and statistically link diverse datasets to create an integrative perspective on geological and biological data. In doing so, we highlight strengths and potential weaknesses of new methods and analyses, and provide recommendations for future interdisciplinary deep-drilling projects.

Genetically engineered silk and genipin-enhanced fibrin hydrogel for annulus fibrosus repair

INTRODUCTION: Around 80% of people are affected by low back pain at least once in their life, often caused by trauma provoking intervertebral disc (IVD) herniation and/or IVD degeneration. Apart from some promising approaches for nucleus pulposus repair, so far no treatment or repair is available for the outer fibrous tissue, annulus fibrosus (AF). We aimed for sealing and repairing an AF injury in a bovine IVD organ culture model in vitro over 14 days under different loading conditions. For this purpose, a silk fleece composite from Bombyx mori silk was combined with genipin-enhanced fibrin hydrogel [1]. METHODS: Bovine IVDs of 12-17 months old animals were isolated by first removing all surrounding tissue, followed by cutting out the IVDs [2]. Culturing of discs occurred in high glucose Dulbecco's Modified Eagle Medium (HG-DMEM) supplemented with 5% serum as previously described. On the next day, injury was induced using a 2mm biopsy punch (Polymed, Switzerland). The formed cavity was filled with (0.4%) genipin-enhanced human based fibrin hydrogel (35- 55mg/mL human fibrinogen, Baxter, Austria) and sealed with a silk fleece-membrane composite (Spintec Engineering, Germany). Different culture conditions were applied: free swelling, static diurnal load of 0.2MPa for 8h/d and complex loading at 0.2MPa compression combined with ± 2° torsion at 0.2Hz for 8h/d. Complex loading was applied by a custom built 2 degree of freedom bioreactor [3]. After 14 days of culture cell activity was determined with resazurin assay. Additionally, glycosaminoglycan (dimethyl-methylene blue), DNA (Hoechst) and collagen content (hydroxy-proline) were determined. Finally, real-time qPCR of major IVD marker genes was performed. RESULTS: The silk seal closing the injury site could successfully withstand the forces of all three loading conditions with no misplacement over the two weeks’ culture. Nevertheless, disc height of the repaired discs did not significantly differ from the injured group. The disc phenotype could be maintained as demonstrated by biochemical analysis of gene expression, cell activity, DNA-, collagen- and GAG content. The silk itself was evaluated to be highly biocompatible for hMSC, as revealed by cytotoxicity assays. DISCUSSION & CONCLUSIONS: The silk can be considered a highly-elastic and biocompatible material for AF closure and the genipin-enhanced fibrin hydrogel has also good biomechanical properties. However, the cyto-compatibility of genipin seems rather poor and other hydrogels and/or cross-linkers should be looked into. REFERENCES: 1 C.C. Guterl et al. (2014) Characterization of Mechanics and Cytocompatibility of Fibrin Genipin Annulus Fibrosus Sealant with the Addition of Cell Adhesion Molecules, Tissue Eng Part A 2 S.C. Chan, B. Gantenbein-Ritter (2012) Preparation of intact bovine tail intervertebral discs for organ culture, J Vis Exp 3 B Gantenbein et al. (2015) Organ Culture Bioreactors - Platforms to Study Human Intervertebral Disc Degeneration and Regenerative Therapy, Curr Stem Cell Res Ther [epub ahead of print] ACKNOWLEDGEMENTS: This project is supported by the Gebert Rüf Stiftung project # GRS-028/13.