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.

Does context matter? Analysing structural and individual factors of member commitment in sport clubs

This article addresses factors that infl uence member commitment in sport clubs. Based on the theory of social action and the economic behaviour theory, it focuses not only on individual characteristics of club members but also on the corresponding structural conditions of sport clubs. Accordingly, a multilevel framework is developed for explaining member commitment in sport clubs. Different multilevel models were estimated in order to analyse the infl uences of both the individual and corresponding context Level in a sample of n = 1,699 members of 42 Swiss and German sport clubs. The multilevel analysis permitted an adequate handling of hierarchically structured data. Results of These multilevel analyses indicated that the commitment of members is not just an outcome of individual characteristics such as strong identifi cation with their club, positively perceived (collective) solidarity, satisfaction with their sport club, or voluntary engagement. It is also determined by club-specific structural conditions: commitment proves to be more probable in rural sport clubs and clubs that explicitly support sociability. Furthermore, cross-level effects in relation to member commitment were also found between the context variable sociability and the individual variable identification.

Mandatory communication skills training for oncologists: enforcement does not substantially impact satisfaction.

PURPOSE Even though there is evidence that both patients and oncology clinicians are affected by the quality of communication and that communication skills can be effectively trained, so-called Communication Skills Trainings (CSTs) remain heterogeneously implemented. METHODS A systematic evaluation of the level of satisfaction of oncologists with the Swiss CST before (2000-2005) and after (2006-2012) it became mandatory. RESULTS Levels of satisfaction with the CST were high, and satisfaction of physicians participating on a voluntary or mandatory basis did not significantly differ for the majority of the items. CONCLUSIONS The evaluation of physicians' satisfaction over the years and after introduction of mandatory training supports recommendations for generalized implementation of CST and mandatory training for medical oncologists.

Recurrence-free survival, but not surgical therapy per se, determines 583 patients' long-term satisfaction following primary pilonidal sinus surgery.

PURPOSE With pilonidal sinus disease (PSD) incidence increasing and patients freely choosing their surgeon, patients' interest issues have been brought forward estimating patient satisfaction following pilonidal sinus surgery. The influence of wound healing time and long-term recurrence rate on patient satisfaction in primary PSD surgery has not been investigated yet. METHODS Five hundred eighty-three patients (German military cohort) were interviewed, compiling wound healing time, aesthetic satisfaction, long-term recurrence-free survival and patient satisfaction having undergone primary open (PO) treatment, marsupialization (MARS) or primary midline closure (PMC) treatment. Recurrence rate was determined by Kaplan-Meier calculation following up to 20 years after primary PSD surgery. RESULTS Patient satisfaction ranking from 1 to 10 (10 = max. satisfied) showed an average satisfaction of 8.2 (range 0-10; 95% confidence interval (CI) 7891-8250). In-hospital stay time was significantly longer in primary open (PO) and marsupialization (MARS) group as compared to primary midline closure (PMC; p < 0.0001, Kruskal-Wallis test). Satisfaction was comparable between treatment groups, and was neither linked to in-hospital stay time nor to longer outpatient wound care period or total treatment time. Recurrence-free survival, as seen in the PO and PMC treatment group, revealed a highly significant difference for all patients. Improvement in MARS patients with versus without recurrence was low, as satisfaction with primary treatment was lower as the other groups. CONCLUSIONS Neither choice of surgical treatment nor treatment duration within hospital or after hospital influences patient satisfaction, as long as recurrence-free survival can be provided. Marsupialization was ranked lower in both groups (with or without recurrence), and should be abandoned, as patients are significantly less satisfied with either results, independent of recurrence.

Adjunct prednisone therapy for patients with community-acquired pneumonia: a multicentre, double-blind, randomised, placebo-controlled trial

BACKGROUND Clinical trials yielded conflicting data about the benefit of adding systemic corticosteroids for treatment of community-acquired pneumonia. We assessed whether short-term corticosteroid treatment reduces time to clinical stability in patients admitted to hospital for community-acquired pneumonia. METHODS In this double-blind, multicentre, randomised, placebo-controlled trial, we recruited patients aged 18 years or older with community-acquired pneumonia from seven tertiary care hospitals in Switzerland within 24 h of presentation. Patients were randomly assigned (1:1 ratio) to receive either prednisone 50 mg daily for 7 days or placebo. The computer-generated randomisation was done with variable block sizes of four to six and stratified by study centre. The primary endpoint was time to clinical stability defined as time (days) until stable vital signs for at least 24 h, and analysed by intention to treat. This trial is registered with ClinicalTrials.gov, number NCT00973154. FINDINGS From Dec 1, 2009, to May 21, 2014, of 2911 patients assessed for eligibility, 785 patients were randomly assigned to either the prednisone group (n=392) or the placebo group (n=393). Median time to clinical stability was shorter in the prednisone group (3·0 days, IQR 2·5-3·4) than in the placebo group (4·4 days, 4·0-5·0; hazard ratio [HR] 1·33, 95% CI 1·15-1·50, p<0·0001). Pneumonia-associated complications until day 30 did not differ between groups (11 [3%] in the prednisone group and 22 [6%] in the placebo group; odds ratio [OR] 0·49 [95% CI 0·23-1·02]; p=0·056). The prednisone group had a higher incidence of in-hospital hyperglycaemia needing insulin treatment (76 [19%] vs 43 [11%]; OR 1·96, 95% CI 1·31-2·93, p=0·0010). Other adverse events compatible with corticosteroid use were rare and similar in both groups. INTERPRETATION Prednisone treatment for 7 days in patients with community-acquired pneumonia admitted to hospital shortens time to clinical stability without an increase in complications. This finding is relevant from a patient perspective and an important determinant of hospital costs and efficiency. FUNDING Swiss National Science Foundation, Viollier AG, Nora van Meeuwen Haefliger Stiftung, Julia und Gottfried Bangerter-Rhyner Stiftung.

Patient-Rated Outcomes of Lumbar Fusion in Patients with Degenerative Disease of the Lumbar Spine: Does Age Matter?

STUDY DESIGN Single centre retrospective study of prospectively collected data, nested within the Eurospine Spine Tango data acquisition system. OBJECTIVE The aim of this study was to assess the patient-rated outcome and complication rates associated with lumbar fusion procedures in three different age groups. SUMMARY OF BACKGROUND DATA There is a general reluctance to consider spinal fusion procedures in elderly patients due to the increased likelihood of complications. METHODS Before and at 3, 12, and 24 months after surgery, patients completed the multidimensional Core Outcome Measures Index (COMI). At the 3-, 12-, and 24-month follow-ups they also rated the Global Treatment Outcome (GTO) and their satisfaction with care. Patients were divided into three age groups: younger (≥50y < 65y; n = 317), older (≥65y < 80y; n = 350), and geriatric (≥ 80y; n = 40). RESULTS 707 consecutive patients were included. The preoperative comorbidity status differed significantly (p < 0.0001) between the age groups, with the highest scores in the geriatric group. Medical complications during surgery were lower in the younger age group (7%) than in the older (13.4%; p = 0.006) and geriatric groups (17.5%; p = 0.007); surgical complications tended to be higher in the elderly group (younger, 6.3%; older, 6.0%; geriatric, 15.0%; p = 0.09). There were no significant group differences (p > 0.05) for the scores on any of the COMI domains, GTO, or patient-rated satisfaction at either 3-, 12-, and 24-months follow-up. CONCLUSIONS Despite greater comorbidity and complication rates in geriatric patients, the patient-rated outcome was as good in the elderly as it was in younger age groups up to two years after surgery. These data indicate that geriatric age needs careful consideration of associated risks but is not per se a contraindication for fusion for lumbar degenerative disease. LEVEL OF EVIDENCE 4.