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.

Comparative cost-effectiveness of Option B+ for prevention of mother-to-child transmission of HIV in Malawi.

OBJECTIVE To estimate the cost-effectiveness of prevention of mother-to-child transmission (MTCT) of HIV with lifelong antiretroviral therapy (ART) for pregnant and breastfeeding women ('Option B+') compared with ART during pregnancy or breastfeeding only unless clinically indicated ('Option B'). DESIGN Mathematical modelling study of first and second pregnancy, informed by data from the Malawi Option B+ programme. METHODS Individual-based simulation model. We simulated cohorts of 10 000 women and their infants during two subsequent pregnancies, including the breastfeeding period, with either Option B+ or B. We parameterized the model with data from the literature and by analysing programmatic data. We compared total costs of antenatal and postnatal care, and lifetime costs and disability-adjusted life-years of the infected infants between Option B+ and Option B. RESULTS During the first pregnancy, 15% of the infants born to HIV-infected mothers acquired the infection. With Option B+, 39% of the women were on ART at the beginning of the second pregnancy, compared with 18% with Option B. For second pregnancies, the rates MTCT were 11.3% with Option B+ and 12.3% with Option B. The incremental cost-effectiveness ratio comparing the two options ranged between about US$ 500 and US$ 1300 per DALY averted. CONCLUSION Option B+ prevents more vertical transmissions of HIV than Option B, mainly because more women are already on ART at the beginning of the next pregnancy. Option B+ is a cost-effective strategy for PMTCT if the total future costs and lost lifetime of the infected infants are taken into account.

Current aspects and future prospects of total anorectal reconstruction - a critical and comprehensive review of the literature

PURPOSE: Many rectal cancer patients undergo abdominoperineal excision worldwide every year. Various procedures to restore perineal (pseudo-) continence, referred to as total anorectal reconstruction, have been proposed. The best technique, however, has not yet been defined. In this study, the different reconstruction techniques with regard to morbidity, functional outcome and quality of life were analysed. Technical and timing issues (i.e. whether the definitive procedure should be performed synchronously or be delayed), oncological safety, economical aspects as well as possible future improvements are further discussed. METHODS: A MEDLINE and EMBASE search was conducted to identify the pertinent multilingual literature between 1989 and 2013. All publications meeting the defined inclusion/exclusion criteria were eligible for analysis. RESULTS: Dynamic graciloplasty, artificial bowel sphincter, circular smooth muscle cuff or gluteoplasty result in median resting and squeezing neo-anal pressures that equate to the measurements found in incontinent patients. However, quality of life was generally stated to be good by patients who had undergone the procedures, despite imperfect continence, faecal evacuation problems and a considerable associated morbidity. Many patients developed an alternative perception for the urge to defecate that decisively improved functional outcome. Theoretical calculations suggested cost-effectiveness of total anorectal reconstruction compared well to life with a permanent colostomy. CONCLUSIONS: Many patients would be highly motivated to have their abdominal replaced by a functional perineal colostomy. Given the considerable morbidity and questionable functional outcome of current reconstruction technique improvements are required. Tissue engineering might be an option to design an anatomically and physiologically matured, and customised continence organ.

Retention in care under universal antiretroviral therapy for HIV-infected pregnant and breastfeeding women ('Option B+') in Malawi

OBJECTIVE To explore the levels and determinants of loss to follow-up (LTF) under universal lifelong antiretroviral therapy (ART) for pregnant and breastfeeding women ('Option B+') in Malawi. DESIGN, SETTING, AND PARTICIPANTS We examined retention in care, from the date of ART initiation up to 6 months, for women in the Option B+ program. We analysed nationwide facility-level data on women who started ART at 540 facilities (n = 21 939), as well as individual-level data on patients who started ART at 19 large facilities (n = 11 534). RESULTS Of the women who started ART under Option B+ (n = 21 939), 17% appeared to be lost to follow-up 6 months after ART initiation. Most losses occurred in the first 3 months of therapy. Option B+ patients who started therapy during pregnancy were five times more likely than women who started ART in WHO stage 3/4 or with a CD4 cell count 350 cells/μl or less, to never return after their initial clinic visit [odds ratio (OR) 5.0, 95% confidence interval (CI) 4.2-6.1]. Option B+ patients who started therapy while breastfeeding were twice as likely to miss their first follow-up visit (OR 2.2, 95% CI 1.8-2.8). LTF was highest in pregnant Option B+ patients who began ART at large clinics on the day they were diagnosed with HIV. LTF varied considerably between facilities, ranging from 0 to 58%. CONCLUSION Decreasing LTF will improve the effectiveness of the Option B+ approach. Tailored interventions, like community or family-based models of care could improve its effectiveness.

Critical incidence reporting systems - an option in equine anaesthesia? Results from a panel meeting.

OBJECTIVE To provide a brief introduction into Critical Incident Reporting Systems (CIRS) as used in human medicine, and to report the discussion from a recent panel meeting discussion with 23 equine anaesthetists in preparation for a new CEPEF-4 (Confidential Enquiry into Perioperative Equine Fatalities) study. STUDY DESIGN Moderated group discussions, and review of literature. METHODS The first group discussion focused on the definition of 'preventable critical incidents' and/or 'near misses' in the context of equine anaesthesia. The second group discussion focused on categorizing critical incidents according to an established framework for analysing risk and safety in clinical medicine. RESULTS While critical incidents do occur in equine anaesthesia, no critical incident reporting system including systematic collection and analysis of critical incidents is in place. CONCLUSIONS AND CLINICAL RELEVANCE Critical incident reporting systems could be used to improve safety in equine anaesthesia - in addition to other study types such as mortality studies.

Comprehensive geriatric assessment in patients undergoing transcatheter aortic valve implantation–rationale and design of the European CGA-TAVI registry

Abstract Purpose Aortic stenosis (AS) is the most common valvular abnormality in the elderly population. For inoperable patients or those at high-risk for surgery, transcatheter aortic valve implantation (TAVI) has become an alternative therapeutic option. The aim of the “Comprehensive geriatric assessment for transcatheter aortic valve implantation” (CGA-TAVI) registry is to evaluate the effectiveness of TAVI from the perspective of the geriatrician and to identify patient characteristics and indicators related to complications and clinical benefits for patients with symptomatic severe calcified degenerative AS undergoing TAVI. Materials and methods The CGA-TAVI registry is an international, multi-center, prospective, observational registry across Europe with consecutive patient enrolment. The registry will enrol up to 200 patients with AS undergoing TAVI, starting August 2013. CGA-TAVI has two co-primary objectives: (1) Establish predictive value of Comprehensive geriatric assessment (CGA) for mortality and/or hospitalization in TAVI patients. (2) Demonstrate CGA changes within 3 months after TAVI. Secondary objectives are: (1) Establish predictive value of CGA in TAVI patients for all-cause hospitalization, TAVI-related hospitalization, and nursing home admission. (2) Develop a comprehensive score for the assessment of TAVI patient prognosis. Conclusions The data obtained from the CGA-TAVI registry will supplement previous results to document the potential value of the effectiveness of TAVI from the perspective of geriatricians and will allow the assessment of the predictive value of CGA for mortality and/or hospitalization in elderly TAVI patients. Keywords Aortic stenosis; Transcatheter aortic valve implantation (TAVI); Comprehensive geriatric assessment (CGA); Registry; Predictor

Xenotransplantation of cryopreserved human ovarian tissue--a systematic review of MII oocyte maturation and discussion of it as a realistic option for restoring fertility after cancer treatment.

OBJECTIVE To systematically review the reporting of MII (MII) oocyte development after xenotransplantation of human ovarian tissue. DESIGN Systematic review in accordance with the guidelines of the Preferred Reporting Items for Systematic Reviews and Meta-analyses (PRISMA). SETTING Not applicable. PATIENT(S) Not applicable. INTERVENTION(S) Formation of MII oocytes after xenotransplantation of human ovarian tissue. MAIN OUTCOME MEASURE(S) Any outcome reported in Pubmed. RESULT(S) Six publications were identified that report on formation of MII oocytes after xenotransplantation of human ovarian tissue. CONCLUSION(S) Xenografting of human ovarian tissue has proved to be a useful model for examining ovarian function and follicle development in vivo. With human follicles that have matured through xenografting, the possibility of cancer transmission and relapse can also be eliminated, because cancer cells are not able to penetrate the zona pellucida. The reported studies have demonstrated that xenografted ovarian tissue from a range of species, including humans, can produce antral follicles that contain mature (MII) oocytes, and it has been shown that mice oocytes have the potential to give rise to live young. Although some ethical questions remain unresolved, xenotransplantation may be a promising method for restoring fertility. This review furthermore describes the value of xenotransplantation as a tool in reproductive biology and discusses the ethical and potential safety issues regarding ovarian tissue xenotransplantation as a means of recovering fertility.

Differentiating the Multipoint Expected Improvement for Optimal Batch Design

This work deals with parallel optimization of expensive objective functions which are modelled as sample realizations of Gaussian processes. The study is formalized as a Bayesian optimization problem, or continuous multi-armed bandit problem, where a batch of q > 0 arms is pulled in parallel at each iteration. Several algorithms have been developed for choosing batches by trading off exploitation and exploration. As of today, the maximum Expected Improvement (EI) and Upper Confidence Bound (UCB) selection rules appear as the most prominent approaches for batch selection. Here, we build upon recent work on the multipoint Expected Improvement criterion, for which an analytic expansion relying on Tallis’ formula was recently established. The computational burden of this selection rule being still an issue in application, we derive a closed-form expression for the gradient of the multipoint Expected Improvement, which aims at facilitating its maximization using gradient-based ascent algorithms. Substantial computational savings are shown in application. In addition, our algorithms are tested numerically and compared to state-of-the-art UCB-based batchsequential algorithms. Combining starting designs relying on UCB with gradient-based EI local optimization finally appears as a sound option for batch design in distributed Gaussian Process optimization.