Effect of executive compensation on firm performance

The paper finds evidence that the equity-based CEO pay is positively related to firm performance and risk-taking. Both stock price and operating performance as well as firm's riskiness increase in the pay-performance sensitivities (PPS) provided by CEO stock options and stock holdings. PPS can explain stock returns better as an additional factor to the Fama-French 3-factor model. When CEOs are compensated with higher PPS, firms experience higher return on asset (ROA). The higher PPS also leads to the higher risk-taking. While CEO incentive compensation has been perceived mixed on its effectiveness, this study provides support to the equity-based CEO compensation in reducing agency conflicts between CEOs and shareholders.

Remuneração executiva e desempenho: evidências empíricas no mercado de capitais brasileiro

O objetivo desta dissertação é analisar a relação existente entre remuneração executiva e desempenho em companhias brasileiras de capital aberto listadas na BM&FBOVESPA. A linha teórica parte do pressuposto que o contrato de incentivos corrobora com o alinhamento de interesses entre acionistas e executivos e atua como um mecanismo de governança corporativa a fim de direcionar os esforços dos executivos para maximização de valor da companhia. A amostra foi composta pelas 100 companhias mais líquidas listadas em quantidade de negociações de ações na BM&FBOVESPA durante o período 2010-2012, totalizando 296 observações. Os dados foram extraídos dos Formulários de Referência disponibilizados pela CVM e a partir dos softwares Economática® e Thomson Reuters ®. Foram estabelecidas oito hipóteses de pesquisa e estimados modelos de regressão linear múltipla com a técnica de dados em painel desbalanceado, empregando como variável dependente a remuneração total e a remuneração média individual e como regressores variáveis concernentes ao desempenho operacional, valor de mercado, tamanho, estrutura de propriedade, governança corporativa, além de variáveis de controle. Para verificar os fatores que explicam a utilização de stock options, programa de bônus e maior percentual de remuneração variável foram estimados modelos de regressão logit. Os resultados demonstram que, na amostra selecionada, existe relação positiva entre remuneração executiva e valor de mercado. Verificou-se também que os setores de mineração, química, petróleo e gás exercem influência positiva na remuneração executiva. Não obstante, exerce relação inversa com a remuneração total à concentração acionária, o controle acionário público e o fato da companhia pertencer ao nível 2 ou novo mercado conforme classificação da BMF&BOVESPA. O maior valor de mercado influencia na utilização de stock options, assim como no emprego de bônus, sendo que este também é impactado pelo maior desempenho contábil. Foram empregados também testes de robustez com estimações por efeitos aleatórios, regressões com erros-padrão robustos clusterizados, modelos dinâmicos e os resultados foram similares. Conclui-se que a remuneração executiva está relacionada com o valor corporativo gerando riqueza aos acionistas, mas que a ausência de relação com o desempenho operacional sugere falhas no sistema remuneratório que ainda depende de maior transparência e outros mecanismos de governança para alinhar os interesses entre executivos e acionistas.

Toimitusjohtajien palkitsemisjärjestelmät metsäteollisuusyhtiöissä - empiirinen tutkimus

Tutkielman ensisijaisena tavoitteena oli selvittää miten pörssinoteerattujen metsäteollisuuden alan yhtiöiden toimitusjohtajien palkitsemisjärjestelmät eroavat toisistaan. Tutkimuksessa keskityttiin erityisesti siihen, miten corporate governancen mukainen johtamisen valvonta vaikuttaa toimitusjohtajien palkitsemismenetelmiin. Tutkimuksen aineisto kerättiin internetistä. Corporate governancen näkökulmasta riittävän informaation ja läpinäkyvyyden suositukset nousivat keskeiselle sijalle aineistoa hankittaessa. Tutkimusmenetelminä oli vertaileva ja selittävä tutkimus. Tutkimustulosten mukaan toimitusjohtajien palkitsemisjärjestelmät voidaan jakaa karkeasti kahteen luokkaan: yhdysvaltalaisiin toimitusjohtajiin ja muiden maiden toimitusjohtajiin. Yhdysvalloissa osakkeiden, osakeoptioiden, eläkejärjestelyiden ja muiden pitkän tähtäimen kannustinten osuus on huomattavasti merkittävämpi kuin muissa maissa ja toimitusjohtajien palkan määrä huomattavasti korkeampi kuin muissa maissa. Tutkimustulosten mukaan eri maiden erilaiset corporate governance – järjestelmät synnyttävät näitä eroja, sillä erilaisissa valvontamalleissa

IFRS 2 Osakeperusteiset maksut – ylimmän johdon osakeperusteisten palkitsemisjärjestelmien kirjaaminen sekä vaikutus tilinpäätökseen

Tutkimuksen tarkoituksena on pyrkiä selvittämään kansainvälisen tilipäätösstandardin, IFRS 2 Osakeperusteiset maksut, vaikutusta yritysten palkitsemisjärjestelmäkäytäntöihin standardin voimaanastumisesta aina nykyhetkeen saakka. Tarkastelun ensisijaisena pyrkimyksenä on selvittää, miten osakeperusteiset palkitsemisjärjestelmät, kirjataan yritysten tilinpäätöksiin. Tutkimuksessa on myös tarkoitus yritysten tilinpäätösinformaatioiden kautta pyrkiä tuomaan esille osakeperusteisten maksujen tilinpäätöksellinen vaikutus, eli selvittää, millaisia vaikutuksia osakeperusteisten maksujen kirjaamisella on yritysten tunnusluvuille.

Determinantes do prazo de exercício das opções de ações concedidas aos executivos como remuneração

Diante do aumento expressivo da outorga de opções de ações por parte das companhias como forma de remuneração e dos consequentes excessos, como por exemplo, executivos tendo exercido bônus milionários antes que suas companhias gerassem caixa ou mesmo em empresas que foram à falência, esta pesquisa buscou encontrar quais eram os principais determinantes do prazo de exercício das opções de compra. Por meio de uma regressão cross section, foram analisadas as características de 109 empresas listadas nos melhores níveis de governança e/ou nos maiores índices de ações do Brasil a fim de verificar quais delas influenciavam o prazo supramencionado. Os resultados encontrados não se mostraram estatisticamente relevantes, o que quer dizer que para efeito deste estudo os prazos definidos pelas empresas não guardam relação com àquelas variáveis e, portanto, com suas características intrínsecas. Logo, novas pesquisas devem abordar a definição de prazo junto aos consultores de remuneração e membros de Conselho de Administração.

Pricing the cost of an election: the impact of the 2014 elections on stock markets

Qual o efeito de eleições em ativos reais? É possível mensurar diretamente a diferença de preços mesmo que só possamos enxergar um dos resultados potenciais? Essa dissertação estima esses efeitos utilizando metodologia baseada em opções sobre ações. O modelo aqui desenvolvido adaptção tradicional Black-Scholes para incorporar dois novos parâmetros: um salto no preço do ativo perfeitamente antecipado e uma série de probabilidades diárias refletindo as crenças sobre quem venceria a corrida eleitoral. Aplicamos esse método para o caso brasileiro das Eleições Presidenciais de 2014 e a Petrobras - uma importante companhia do setor petrolífero do país -utilizando dados de bolsa do segundo turno das eleições. Os resultados encontrados mostram uma diferença de 65-77% para o valor da companhia, dependendo de quem vencesse nas urnas. Isso é equivalente a aproximadamente 2.5% do PIB de 2014 do país.

The Effectiveness of Golden Handcuffs

Executive compensation includes components intended to acquire and retain executives as well as to align their goals with those of shareholders. This paper focuses on retention compensation, commonly known as "golden handcuffs", including stock options, long-term incentive plans and restricted stock. The extant literature examines CEOs that change jobs despite their golden handcuffs, and argues that such compensation is not an effective means of executive retention. In this paper, I compare the golden handcuffs of a set of CEOs who change jobs to a matched set of those who do not in order to determine the efficacy of such compensation for executive retention. I find that restricted stock is positively related to CEO turnover whereas stock options are negatively related.

Governança corporativa e custo de agência: uma visão do mercado brasileiro

Esse trabalho investiga empiricamente a relação entre custo de agência e as medidas de monitoramento interno disponíveis aos investidores brasileiros nas empresas nacionais, utilizando amostras de companhias abertas entre os anos de 2010 e 2014, totalizando 134 empresas analisadas e 536 observações. Para medir tal relação, foram utilizadas, como variáveis de monitoramento interno, informações sobre a remuneração variável dos executivos, entre elas o uso de outorgas de opções de compra de ações, a composição do conselho de administração, dando ênfase à representatividade dos conselheiros independentes e à dualidade entre Chairman e CEO, e o percentual do capital social das companhias que está sob propriedade dos executivos. Como proxy para custo de agência, foram utilizados os indicadores Asset Turnover Ratio e General & Administrative Expenses (G&A) como percentual da Receita Líquida. Neste contexto, foram estabelecidas duas hipóteses de pesquisa e estimados modelos de regressão em painel controlados por efeitos fixos de tempo e empresa, empregando como variável dependente as variáveis proxy do custo de agência e utilizando as variáveis endividamento e tamanho das empresas como variáveis de controle. Os resultados dos modelos demonstram que, na amostra selecionada, há uma relação positiva e significativa entre o percentual da remuneração variável e as proxies de custo de agência, comportamento este contrário ao esperado originalmente. Conclui-se assim que as empresas que apresentam uma maior composição variável no total remunerado ao executivo, incorrem em um maior custo de agência, o que leva à conclusão de que tais ferramentas não são boas estratégias de alinhamento de interesses entre executivos e acionistas. As demais variáveis de monitoramento interno não apresentaram significância.

Essays on risk-taking in corporate finance

This thesis consists of three independent essays on risk-taking in corporate finance. The first essay explores how community-level social capital (CSC), framed as a cultural characteristic of individuals born in different provinces of Italy, affects investment behavior in equity crowdfunding. Results show that investors born in high-CSC provinces invest more money in ventures characterized by an enhanced risk profile. Observed risk-taking is theoretically linked to higher generalized trust endowed to people born in high-CSC areas. The second essay focuses on how convexity of Chief Financial Officers’ stock options affects their hedging decisions in the oil and gas industry. Highly convex CFOs hedge less commodity price risk, even if the Chief Executive Officer’s incentives are consistent with a more conservative hedging strategy. Finally, the third essay is a systematic literature review on how different sources of compensation-based risk-taking incentives of Chief Executive Officers affect decision-making in corporate finance.

Five-Year Denosumab Treatment of Postmenopausal Women with Osteoporosis: Results from the first two Years of the Freedom Trial Extension

Objectives : The FREEDOM trial1 open-label extension is designed to evaluate the long-term efficacy and safety of denosumab for up to 10 years. We report the results from the first 2 years of the extension, representing up to 5 years of denosumab exposure.Materials/Methods : Postmenopausal women enrolled in the extension previously completed FREEDOM. During the extension, all women receive denosumab (60 mg) every 6 months and calcium and vitamin D daily. For the FREEDOM denosumab group, the data reflect 5 years of denosumab treatment (long-term group). For the FREEDOM placebo group, the data reflect 2 years of denosumab treatment (de novo group). P-values are descriptive.Results : There were 4550 (70.2%) FREEDOM women enrolled in the extension (2343 long-term; 2207 de novo). During the 4th and 5th years of denosumab treatment, the long-term group had further 1.9% and 1.7% increases in lumbar spine BMD and further 0.7% and 0.6% increases in total hip BMD (all P<0.0001 compared with extension baseline). Total BMD increases with 5-year denosumab treatment were 13.7% (lumbar spine) and 7.0% (total hip). In the de novo group, BMD increased during the first 2 years of denosumab treatment by 7.9% (lumbar spine) and 4.1% (total hip) (all P<0.0001 compared with extension baseline). After denosumab administration, serum CTX was rapidly and maximally reduced in both groups with the characteristic attenuation observed at the end of the dosing interval, as previously reported.2 Incidences of new vertebral and nonvertebral fractures were low and below rates observed in the FREEDOM placebo group. Adverse event reports were similar for both groups: in the long-term group, 83.4% reported AEs and 18.9% were serious. In the de novo group, the percentages were 82.8% and 19.4%, respectively. In FREEDOM, the respective percentages were 92.8% and 25.8% in the denosumab group and 93.1% and 25.1% in the placebo group. Two subjects in the de novo group had AEs adjudicated to ONJ which healed without further complications ; one resolved within the 6-month dosing interval and denosumab was continued. There were no atypical femoral fractures.Conclusions : Denosumab treatment for 5 years was well-tolerated and continued to significantly reduce CTX and significantly increase BMD. Reference: 1)Cummings;NEJM;2009;361:756, 2)Eastell;JBMR;2010; doi-10.1002/jbmr.251 Disclosure of Interest: This study was funded by Amgen; S Papapoulos: Consulting fees from Amgen, Merck, Novartis, Procter & Gamble, GSK, and Wyeth; R Chapurlat: Research grants and/or consulting fees from Amgen, Merck, Novartis, sanofi-aventis, Roche, Servier, and Warner Chilcott;ML Brandi: Research grants and/or consulting fees from Amgen, Eli Lily, GSK, MSD, NPS, Nycomed, Roche, Servier, and Stroder; JP Brown: Research grants and/or consulting or speaking fees from Abott, Amgen, Bristol Myers Squibb, Eli Lilly, Pfizer, Roche, Novartis, Merck, and Warner Chilcott; E Czerwinski: Research grants from Amgen, Astrazeneca, Danone Research, Eli Lilly, Merck Sharp & Dohme, Merck Serono, Novartis, Pfizer, Roche, SantoSolve AS, and Servier; N Daizadeh, A Grauer, C Libanati: Employed by Amgen and own Amgen stocks or stock options; M-A Krieg, D Mellstrom, H Resch: None; S Radominski: Research grants from Amgen, Pfizer, Novartis, Bristol-Myers Squibb, Roche, and Aventis; Z Man: Lecture fees and/or consulting fees from Merck, Novartis, Roche, and sanofi-aventis. Novartis steering committee member; JA Roman: Research grants from Roche; J-Y Reginster: Research grants, consulting fees, and/or lecture fees from Amgen, Analis, Bristol Myers Squibb, Ebewee Pharma, Genevrier, GSK, IBSA, Lilly, Merck Sharp & Dhome, Negma, Novartis, Novo-Nordisk, Nycomed, NPS, Roche, Rottapharm, Servier, Teijin, Teva, Theramex, UCB, Wyeth, and Zodiac; C Roux: Research grants and/or consulting fees from Amgen, MSD, Novartis, Servier, and Roche; SR Cummings: Research grants and/or consulting fees from Amgen, Eli Lilly, Novartis, and Merck; HG Bone: Research grants and/or consulting or speaking fees from Amgen, Eli Lilly, Merck, Nordic Bioscience, Novartis, Takeda, and Zelos

Rapid Improvement in Health-Related Quality of Life in Gouty Arthritis Patients Treated with Canakinumab (ACZ885) Compared to Triamcinolone Acetonide

Background: Gout patients initiating urate lowering therapy have an increased risk of flares. Inflammation in gouty arthritis is induced by interleukin (IL)-1b. Canakinumab inhibits IL-1b effectively in clinical studies. This study compared different doses of canakinumab vs colchicine in preventing flares in gout patients initiating allopurinol therapy.Methods: In this 24 wk double blind study, gout patients (20-79 years) initiating allopurinol were randomized (1:1:1:1:1:1:2) to canakinumab s.c. single doses of 25, 50, 100, 200, 300 mg, or 150mg divided in doses every 4 wks (50þ50þ25þ25mg [q4wk]) or colchicine 0.5mg p.o. daily for 16 wks. Primary outcome was to determine the canakinumab dose giving comparable efficacy to colchicine with respect to number of flares occurring during first 16 wks. Secondary outcomes included number of patients with flares and C-reactive protein (CRP) levels during the first 16 wks.Results: 432 patients were randomized and 391 (91%) completed the study. All canakinumab doses were better than colchicine in preventing flares and therefore, a canakinumab dose comparable to colchicine couldn't be determined. Based on a negative binomialmodel, all canakinumab groups, except 25 mg, reduced the flare rate ratio per patient significantly compared to colchicine group (rate ratio estimates 25mg 0.60, 50mg 0.34, 100mg 0.28, 200mg 0.37, 300mg 0.29, q4wk 0.38; p_0.05). Percentage of patients with flares was lower for all canakinumab groups (25mg 27.3%, 50mg 16.7%, 100mg 14.8%, 200mg 18.5%, 300mg 15.1%, q4wk 16.7%) compared to colchicine group (44.4%). All patients taking canakinumab were significantly less likely to experience at least one gout flare than patients taking colchicine (odds ratio range [0.22 - 0.47]; p_0.05 for all). Median baseline CRP levels were 2.86 mg/L for 25 mg, 3.42 mg/L for 50 mg, 1.76 mg/L for 100 mg, 3.66 mg/L for 200 mg, 3.21 mg/L for 300 mg, 3.23 mg/L for q4wk canakinumab groups and 2.69 mg/L for colchicine group. In all canakinumab groups with median CRP levels above the normal range at baseline, median levels declined within 15 days of treatment and were maintained at normal levels (ULN¼3 mg/L) throughout the 16 wk period. Adverse events (AEs) occurred in 52.7% (25 mg), 55.6% (50 mg), 51.9% (100 mg), 51.9% (200 mg), 54.7% (300 mg), 58.5% (q4wk) of patients on canakinumab vs 53.7% of patients on colchicine. Serious AEs (SAE) were reported in 2 (3.6%; 25 mg), 2 (3.7%, 50 mg), 3 (5.6%, 100 mg), 3 (5.6%, 200 mg), 3 (5.7%, 300 mg), 1 (1.9%, q4wk) patients on canakinumab and in 5 (4.6%) patients on colchicine. 1 fatal SAE (myocardial infarction, not related to study drug) occurred in colchicine group.Conclusions: In this randomized, double-blind active controlled study of flare prevention in gout patients initiating allopurinol therapy, treatment with canakinumab led to a statistically significant reduction in flares compared with colchicine and was well tolerated.Disclosure statement: U.A., A.B., G.K., D.R. and P.S. are employees of and have stock options or bold holdings with Novartis Pharma AG. E.M. is a principal investigator for Novartis Pharmaceuticals Corporation. E.N. has received consulting fees from Roche. N.S. has received research grants from Novartis Pharmaceuticals Corporation. A.S. has received consultancy fees from Novartis Pharma AG, Abbott, Bristol-Myers Squibb, Essex, Pfizer, MSD, Roche, UCB and Wyeth. All other authors have declared no conflicts of interest.

Endogenous spillovers, increased competition and re-organization waves

We consider an entrepreneur that is the sole producer of a costreducing skill, but the entrepreneur that hires a team to usethe skill cannot prevent collusive trade for the innovation related knowledge between employees and competitors. We showthat there are two types of diffusion avoiding strategies forthe entrepreneur to preempt collusive communication i) settingup a large productive capacity (the traditional firm) and ii)keeping a small team (the lean firm). The traditional firm ischaracterized by its many "marginal" employees that work shortdays, receive flat wages and are incompletely informed about the innovation. The lean firm is small in number of employees,engages in complete information sharing among members, that are paid with stock option schemes. We find that the lean firm is superior to the traditional firm when technological entry costsare low and when the sector is immature.

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.