Risk taking of executives under different incentive contracts: experimental evidence

Classic financial agency theory recommends compensation through stock options rather than shares to counteract excessive risk aversion in agents. In a setting where any kind of risk taking is suboptimal for shareholders, we show that excessive risk taking may occur for one of two reasons: risk preferences or incentives. Even when compensated through restricted company stock, experimental CEOs take large amounts of excessive risk. This contradicts classical financial theory, but can be explained through risk preferences that are not uniform over the probability and outcome spaces, and in particular, risk seeking for small probability gains and large probability losses. Compensation through options further increases risk taking as expected. We show that this effect is driven mainly by the personal asset position of the experimental CEO, thus having deleterious effects on company performance.

Reining in excessive risk-taking by executives: the effect of accountability

Performance-contingent compensation by means of stock options may induce risk-taking in agents that is excessive from the point of view of the company or the shareholders. We test whether increasing shareholder control may be an effective checking mechanism to rein in such excessive risk-taking. We thus tell one group of experimental CEOs that they may have to justify their decision-making processes in front of their shareholders. This indeed reduces risk-taking and increases the performance of the companies they manage. Implications are discussed.

Monitoring and incentives of executives in risky firms : a test of the association with firm performance

This study investigates the relationship between a firm's risk and the effectiveness of the firm's corporate governance practices. Previous research investigating the relationship between corporate controls and firm performance has been mixed and often weak. Therefore, this study sets out to determine the efficiency of monitoring and incentive contracts given certain characteristics of the firm. That is, the study sets out to determine whether risk firms with higher monitoring and levels of incentives are associated with higher firm performance.
The results of this study of 282 firms demonstrate how the relationship between firm risk and performance is associated with the monitoring and incentive contracts used by these firms. In particular, the results of this study showed that the negative association between risk and firm performance is weakened when firms have stronger monitoring and incentive mechanisms. The particular contribution of this study is to show that the role of corporate governance variables infirm performance should be evaluated in the context of the firm's risk.

Measuring marketing performance: comparing the literature with the perspective of business executives

This paper investigated performance measurement from both an academic and an Australian practitioner perspective. The current consensus in the literature is that performance is a multi-faceted construct, incorporating both financial and non-financial aspects, and that a sole focus on financial performance measures is less appropriate to deal with the issues that confront organisations today. However, the findings ofthis research indicate that researchers and practitioners alike are driven by financial performance measures. The results indicate that sales/growth and Return-on-Investment (ROI) are the most frequently utilised financial performance measures, whilst satisfaction is the most frequently utilised non-financial measure.

Stories of ambivalence : Australian executives' experiences of outplacement services

The increasing prevalence of organizational downsizing has been matched by growth in the provision of outplacement services. Yet there has been limited research on either the effectiveness of these programs or the experience of individuals undertaking them. Within a qualitative study investigating the experiences of Australian executives who had been made redundant, one of the focus areas explored was the experience of using outplacement services. Respondents' stories revealed a sense of ambivalence towards these programs. This paper discusses the conflicting experiences giving rising to this ambivalence, namely, positive outcomes with respect to the use of office services and the receiving of proactive support, and more negative aspects of an absence of counselling skills and impersonal treatment through the organizational exit process. It is argued that further research on the outplacement experience is required to determine the type and quality of services which will best serve those who have been made redundant.

"Look at him...he's failing" : male executives' experiences of redundancy

Participation and success in paid work is a key element of identity for many men. The increased prevalence of downsizing and the associated discarding of individuals from their workplaces, then, has particular relevance for men. This paper shares qualitative findings from an exploratory phenomenological study investigating the experiences of Australian executives who had been made redundant. Three themes related to male identity are presented here: Failing as the breadwinner; Being less of a person; and, Losing success. The participants in this study shared feelings of anger, sadness, fear and embarrassment as a result of the assault to their identity that accompanied their involuntary redundancies. The impacts of redundancy were not only felt in relation to their job loss, but continued after returning to work. At a time when downsizing continues to feature as a routine part of organisational life—for some, an experience repeated throughout their careers—further exploration of the experience of redundancy and its implications is required.

Climate change regulation : implications for business executives

Purpose – The purpose of this paper is to provide an overarching conceptual decision model that delineates the major issues and decisions associated with carbon regulations that will allow executives to better understand the potential regulatory schemes and implications that may be imposed in the near future.
Design/methodology/approach – The authors use the extant literature as the foundation to develop a conceptual model of the decisions pertaining to climate change regulation that face business executives today.
Findings – This paper suggests four major categories of issues that must be addressed in any climate change regulatory scheme. These include: “scope” – will carbon emission management systems be global or regional; “who pays” – will the consumer or will the supply chain be responsible for the cost of their emissions; “market or compliance-based mechanisms” – will the CO2 emissions system be market-based or a compliance-based regulatory system; and “criteria” – how can credence of the remedy be established – what is necessary for a business initiative to qualify for as a creditable carbon offset?
Research limitations/implications – This paper offers a framework that categories the fundamental decisions that must be made in any climate change regulation. This framework may be useful in advancing research into any of the four categories of decisions and their implications on commerce and the environment. This paper is designed to be managerially useful and in that way does limit its ability to specifically advance many dimensions of research.
Practical implications – The paper offers executives for a simple model of the decisions that must be made to craft an effective climate change regulatory scheme. In addition, it suggests how these decisions may create exploitable economic opportunities for innovative and proactive firms.
Originality/value – This paper adds value to the debate by clarifying the decisions that must be addressed in any climate change regulation scheme.

Chief Audit Executives’ Evaluations of Whistle-Blowing Allegations

This study examines the effects of the source of whistle-blowing allegations and potential for allegations to trigger concerns about reputation threats on Chief Audit Executives’ handling of whistle-blowing allegations. The participants for this study, 79 Chief Audit Executives (CAEs) and deputy CAEs, evaluated whistle-blowing reports related to financial reporting malfeasance that were received from either an anonymous or a non-anonymous source. The whistle-blowing reports alleged that the wrongdoing resulted from either the exploitation of substantial weaknesses in internal controls (suggesting higher responsibility of the CAE and internal audit) or the circumvention of internal controls (suggesting lower responsibility of the CAE or internal audit). Findings indicate that CAEs believe anonymous whistle-blowing reports to be significantly less credible than non-anonymous reports. Although CAEs assessed lower credibility ratings for the reports alleging wrongdoing by the exploitation of substantial weaknesses in internal controls, they allocated more resources to investigating these allegations.

The Strategic Role of the Sales Force: Perceptions of Senior Sales Executives

Current models of sales force strategy imply formidable information processing demands, which leads us to take a cognitive approach to studying the issue of sales force strategy. We focus on how top-level executives use mental models of sales force performance to simplify the issue of sales force strategy. We interviewed 74 senior executives responsible for their firms’ selling function using the repertory grid approach, as this methodology has been shown to be particularly effective at uncovering the collective cognitive maps on which executives’ decisions and behaviors are based. Executives identified a broad set of 37 strategic concepts that they felt distinguish the sales force efforts of directly competing companies. A second set of sales executives classified the 37 concepts into capabilities, resources, and organizational context concepts. Based on the classification results and feedback from both sets of executives, we developed research propositions for examining sales force strategy and provide directions for future research.

Perceptions of chief executives of Texas Catholic health care institutions regarding the poor and the provision of Catholic health care

Perceptions of chief executive officers (CEOs) of Texas Catholic health care institutions regarding the poor and the provision of Catholic health care were the focus for this study. A total of 40 health care administrators were asked to participate in a survey. Thirty-seven CEOs responded, including seven religious superiors, six health system CEOs and 24 hospital CEOs. Survey items concerning Catholic health for the poor centered on obligations and responsibilities of Catholic hospitals, means of achieving those obligations, and assessment of whether hospitals' objectives were being met. In addition, respondents' attitudes and beliefs about poor people in general were examined. Independent variables were CEO type, gender, religious preference, member of a religious order, and educational preparation. For purposes of analysis, most survey items were classified by level of consensus exhibited by respondents. The respondents to this survey agreed on most issues concerning poor people and the provision of Catholic health care. However, there were areas of disagreement particularly in Part I of the survey which dealt with responsibility/obligation, means/methods, and assessment of health care delivery for the poor. ^

ROLE CONFLICT, ROLE AMBIGUITY, AND JOB DISSATISFACTION: A STUDY OF HOSPITAL EXECUTIVES

The purpose of this study was to assess the relationship of role conflict and role ambiguity to job dissatisfaction among 169 hospital executives in Houston and San Antonio, Texas. Organizational characteristics were studied as moderators.^ Role conflict and role ambiguity scores among respondents were found to be lower than in studies reported in the literature. Job dissatisfaction scores were slightly lower (indicating less dissatisfaction) than those reported elsewhere for the constructs of security, social, and esteem needs; comparable for self-fulfillment; and slightly higher for autonomy needs. Conclusions were that role ambiguity and role conflict were related to job dissatisfaction among the respondents; that the same relationships hold true when controlling for organizational characteristics; that those highest on the organizational ladder were the least dissatisfied; and that those with the greatest amount of budget responsibility had the lowest levels of job dissatisfaction. ^