The Taxation of Bonuses and its Effect on Executive Compensation - Evidence from the UK Experience

This paper explores the reaction of compensation components awarded to executive directors of UK financial institutions following the adoption of the bonus tax in December 2009. Excessive bonuses are blamed for encouraging risk taking and are regarded as one of the pull factors of the financial crisis. The British government attempted to reduce bonuses and accordingly corporate risk-taking by means of a special tax on cashbased bonuses. Using a comprehensive dataset on executive compensation we show that the introduction of the bonus tax decreased the net cash bonuses awarded to directors by about 43%, accompanied however by a simultaneous increase in other compensation components leaving both variable as well as total compensation unaffected. Hence, the incidence of the bonus tax was borne by the firms which compensated their managers for the decrease in cash-based compensation by awarding them different forms of pay. Consistent with this finding our data also suggests that firms reduced dividend pay-outs as a consequence of the bonus tax.

Robust meta-analytic-predictive priors in clinical trials with historical control information.

Historical information is always relevant for clinical trial design. Additionally, if incorporated in the analysis of a new trial, historical data allow to reduce the number of subjects. This decreases costs and trial duration, facilitates recruitment, and may be more ethical. Yet, under prior-data conflict, a too optimistic use of historical data may be inappropriate. We address this challenge by deriving a Bayesian meta-analytic-predictive prior from historical data, which is then combined with the new data. This prospective approach is equivalent to a meta-analytic-combined analysis of historical and new data if parameters are exchangeable across trials. The prospective Bayesian version requires a good approximation of the meta-analytic-predictive prior, which is not available analytically. We propose two- or three-component mixtures of standard priors, which allow for good approximations and, for the one-parameter exponential family, straightforward posterior calculations. Moreover, since one of the mixture components is usually vague, mixture priors will often be heavy-tailed and therefore robust. Further robustness and a more rapid reaction to prior-data conflicts can be achieved by adding an extra weakly-informative mixture component. Use of historical prior information is particularly attractive for adaptive trials, as the randomization ratio can then be changed in case of prior-data conflict. Both frequentist operating characteristics and posterior summaries for various data scenarios show that these designs have desirable properties. We illustrate the methodology for a phase II proof-of-concept trial with historical controls from four studies. Robust meta-analytic-predictive priors alleviate prior-data conflicts ' they should encourage better and more frequent use of historical data in clinical trials.

The prevalence and predictive value of dipstick urine protein in HIV-positive persons in Europe.

INTRODUCTION Proteinuria (PTU) is an important marker for the development and progression of renal disease, cardiovascular disease and death, but there is limited information about the prevalence and factors associated with confirmed PTU in predominantly white European HIV+ persons, especially in those with an estimated glomerular filtration rate (eGFR) of 60 mL/min/1.73 m(2). PATIENTS AND METHODS Baseline was defined as the first of two consecutive dipstick urine protein (DPU) measurements during prospective follow-up >1/6/2011 (when systematic data collection began). PTU was defined as two consecutive DUP >1+ (>30 mg/dL) >3 months apart; persons with eGFR <60 at either DPU measurement were excluded. Logistic regression investigated factors associated with PTU. RESULTS A total of 1,640 persons were included, participants were mainly white (n=1,517, 92.5%), male (n=1296, 79.0%) and men having sex with men (n=809; 49.3%). Median age at baseline was 45 (IQR 37-52 years), and CD4 was 570 (IQR 406-760/mm(3)). The median baseline date was 2/12 (IQR 11/11-6/12), and median eGFR was 99 (IQR 88-109 mL/min/1.73 m(2)). Sixty-nine persons had PTU (4.2%, 95% CI 3.2-4.7%). Persons with diabetes had increased odds of PTU, as were those with a prior non-AIDS (1) or AIDS event and those with prior exposure to indinavir. Among females, those with a normal eGFR (>90) and those with prior abacavir use had lower odds of PTU (Figure 1). CONCLUSIONS One in 25 persons with eGFR>60 had confirmed proteinuria at baseline. Factors associated with PTU were similar to those associated with CKD. The lack of association with antiretrovirals, particularly tenofovir, may be due to the cross-sectional design of this study, and additional follow-up is required to address progression to PTU in those without PTU at baseline. It may also suggest other markers are needed to capture the deteriorating renal function associated with antiretrovirals may be needed at higher eGFRs. Our findings suggest PTU is an early marker for impaired renal function.

Prognostic and predictive roles of MGMT protein expression and promoter methylation in sporadic pancreatic neuroendocrine neoplasms.

BACKGROUND/AIMS O(6)-methylguanine-methyltransferase (MGMT) is an important enzyme of DNA repair. MGMT promoter methylation is detectable in a subset of pancreatic neuroendocrine neoplasms (pNEN). A subset of pNEN responds to the alkylating agent temozolomide (TMZ). We wanted to correlate MGMT promoter methylation with MGMT protein loss in pNEN, correlate the findings with clinico-pathological data and determine the role of MGMT to predict response to TMZ chemotherapy. METHODS We analysed a well-characterized collective of 141 resected pNEN with median follow-up of 83 months for MGMT protein expression and promoter methylation using methylation-specific PCR (MSP). A second collective of 10 metastasized, pretreated and progressive patients receiving TMZ was used to examine the predictive role of MGMT by determining protein expression and promoter methylation using primer extension-based quantitative PCR. RESULTS In both collectives there was no correlation between MGMT protein expression and promoter methylation. Loss of MGMT protein was associated with an adverse outcome, this prognostic value, however, was not independent from grade and stage in multivariate analysis. Promoter hypermethylation was significantly associated with response to TMZ. CONCLUSION Loss of MGMT protein expression is associated with adverse outcome in a surgical series of pNET. MGMT promoter methylation could be a predictive marker for TMZ chemotherapy in pNEN, but further, favourably prospective studies will be needed to confirm this result and before this observation can influence clinical routine.

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.

A conceptual model of compensation/decompensation in lumbar segmental instability

Lumbar spinal instability (LSI) is a common spinal disorder and can be associated with substantial disability. The concept of defining clinically relevant classifications of disease or 'target condition' is used in diagnostic research. Applying this concept to LSI we hypothesize that a set of clinical and radiological criteria can be developed to identify patients with this target condition who are at high risk of 'irreversible' decompensated LSI for whom surgery becomes the treatment of choice. In LSI, structural deterioration of the lumbar disc initiates a degenerative cascade of segmental instability. Over time, radiographic signs become visible: traction spurs, facet joint degeneration, misalignment, stenosis, olisthesis and de novo scoliosis. Ligaments, joint capsules, local and distant musculature are the functional elements of the lumbar motion segment. Influenced by non-functional factors, these functional elements allow a compensation of degeneration of the motion segment. Compensation may happen on each step of the degenerative cascade but cannot reverse it. However, compensation of LSI may lead to an alleviation or resolution of clinical symptoms. In return, the target condition of decompensation of LSI may cause the new occurrence of symptoms and pain. Functional compensation and decompensation are subject to numerous factors that can change which makes estimation of an individual's long-term prognosis difficult. Compensation and decompensation may influence radiographic signs of degeneration, e.g. the degree of misalignment and segmental angulation caused by LSI is influenced by the tonus of the local musculature. This conceptual model of compensation/decompensation may help solve the debate on functional and psychosocial factors that influence low back pain and to establish a new definition of non-specific low back pain. Individual differences of identical structural disorders could be explained by compensated or decompensated LSI leading to changes in clinical symptoms and pain. Future spine surgery will have to carefully define and measure functional aspects of LSI, e.g. to identify a point of no return where multidisciplinary interventions do not allow a re-compensation and surgery becomes the treatment of choice.

General distress, hopelessness—suicidal ideation and worrying in adolescence: Concurrent and predictive validity of a symptom-level bifactor model for clinical diagnoses

BACKGROUND: Clinical disorders often share common symptoms and aetiological factors. Bifactor models acknowledge the role of an underlying general distress component and more specific sub-domains of psychopathology which specify the unique components of disorders over and above a general factor. METHODS: A bifactor model jointly calibrated data on subjective distress from The Mood and Feelings Questionnaire and the Revised Children's Manifest Anxiety Scale. The bifactor model encompassed a general distress factor, and specific factors for (a) hopelessness-suicidal ideation, (b) generalised worrying and (c) restlessness-fatigue at age 14 which were related to lifetime clinical diagnoses established by interviews at ages 14 (concurrent validity) and current diagnoses at 17 years (predictive validity) in a British population sample of 1159 adolescents. RESULTS: Diagnostic interviews confirmed the validity of a symptom-level bifactor model. The underlying general distress factor was a powerful but non-specific predictor of affective, anxiety and behaviour disorders. The specific factors for hopelessness-suicidal ideation and generalised worrying contributed to predictive specificity. Hopelessness-suicidal ideation predicted concurrent and future affective disorder; generalised worrying predicted concurrent and future anxiety, specifically concurrent generalised anxiety disorders. Generalised worrying was negatively associated with behaviour disorders. LIMITATIONS: The analyses of gender differences and the prediction of specific disorders was limited due to a low frequency of disorders other than depression. CONCLUSIONS: The bifactor model was able to differentiate concurrent and predict future clinical diagnoses. This can inform the development of targeted as well as non-specific interventions for prevention and treatment of different disorders.

Horn Growth and Reproduction in a Long-Lived Male Mammal: No Compensation for Poor Early-Life Horn Growth

Secondary sexual traits in males of polygynous species are important determinants of reproductive success. It is, however, unknown if and how the development of continuously growing traits at different life-stages is related to reproduction in long-lived male mammals. In this study, we evaluated the relationship of early and late horn growth on social status and reproduction in long-lived male Alpine ibex (Capra ibex). For this, we analysed individual horn growth and assessed its effect on dominance and reproduction. No evidence was detected for compensatory horn growth, as late-life horn growth positively depended on early-life horn growth in males. Still, individuals with longer horn segments grown during early adulthood experienced a stronger age-dependent length decline in annual horn growth during the late development. Accordingly, a divergence between individual growth potential and realized horn growth late in life has to be assumed. Residual age-specific horn length and length of early grown horn segments both positively affected dominance and reproductive success, whereas, contrary to our expectation, no significant effect of the length of horn segments grown during the late development was detected. Suspected higher somatic costs incurred by high-quality males during their late development might at least partly be responsible for this finding. Overall, our study suggests that the total length of horns and their early development in long-lived male Alpine ibex is a reliable indicator of reproductive success and that individuals may be unable to compensate for poor early-life growth performance at a later point in life.

Differential spatial and structural organization of the X chromosome underlies dosage compensation in C. elegans.

The adjustment of X-linked gene expression to the X chromosome copy number (dosage compensation [DC]) has been widely studied as a model of chromosome-wide gene regulation. In Caenorhabditis elegans, DC is achieved by twofold down-regulation of gene expression from both Xs in hermaphrodites. We show that in males, the single X chromosome interacts with nuclear pore proteins, while in hermaphrodites, the DC complex (DCC) impairs this interaction and alters X localization. Our results put forward a structural model of DC in which X-specific sequences locate the X chromosome in transcriptionally active domains in males, while the DCC prevents this in hermaphrodites.

Predictive modelling of mineral scaling, corrosion and the performance of solute geothermometers in a granitoid-hosted, enhanced geothermal system

Experience is lacking with mineral scaling and corrosion in enhanced geothermal systems (EGS) in which surface water is circulated through hydraulically stimulated crystalline rocks. As an aid in designing EGS projects we have conducted multicomponent reactive-transport simulations to predict the likely characteristics of scales and corrosion that may form when exploiting heat from granitoid reservoir rocks at ∼200 °C and 5 km depth. The specifications of an EGS project at Basel, Switzerland, are used to constrain the model. The main water–rock reactions in the reservoir during hydraulic stimulation and the subsequent doublet operation were identified in a separate paper (Alt-Epping et al., 2013b). Here we use the computed composition of the reservoir fluid to (1) predict mineral scaling in the injection and production wells, (2) evaluate methods of chemical geothermometry and (3) identify geochemical indicators of incipient corrosion. The envisaged heat extraction scheme ensures that even if the reservoir fluid is in equilibrium with quartz, cooling of the fluid will not induce saturation with respect to amorphous silica, thus eliminating the risk of silica scaling. However, the ascending fluid attains saturation with respect to crystalline aluminosilicates such as albite, microcline and chlorite, and possibly with respect to amorphous aluminosilicates. If no silica-bearing minerals precipitate upon ascent, reservoir temperatures can be predicted by classical formulations of silica geothermometry. In contrast, Na/K concentration ratios in the production fluid reflect steady-state conditions in the reservoir rather than albite–microcline equilibrium. Thus, even though igneous orthoclase is abundant in the reservoir and albite precipitates as a secondary phase, Na/K geothermometers fail to yield accurate temperatures. Anhydrite, which is present in fractures in the Basel reservoir, is predicted to dissolve during operation. This may lead to precipitation of pyrite and, at high exposure of anhydrite to the circulating fluid, of hematite scaling in the geothermal installation. In general, incipient corrosion of the casing can be detected at the production wellhead through an increase in H2(aq) and the enhanced precipitation of Fe-bearing aluminosilicates. The appearance of magnetite in scales indicates high corrosion rates.