Manipulation Effects of Managerial Discretion on Executive Compensation: A Comparative Study between Fresh CEOs and Senior CEOs

Changzheng Zhang
School of Economics & Management, Xi’an University of Technology, Shanxi Xi’an, China

Series: Economic Issues, Problems and Perspectives
BISAC: BUS104000

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Facing with the ever increasing change of the business environment, the firms have recognized that their persistent competitive edge increasingly depends on whether or not they own the dedicated, experienced and capable CEOs. In the global practice, more and more firms have tried, or are trying, or will try to change their CEOs in order to get higher firm performance or just to get out of recession. Especially it is true in China.

However, in theory, the literature in the related fields, such as the corporate governance, the strategic human resource management, the strategy management, the principal-agent theory and so on, has only addressed how to arrange managerial discretion and executive compensation reasonably under the normal circumstances, while ignoring the conditions of CEO change. Therefore, each stakeholder in the post-CEO change period has no clear theoretical guidances on how to reallocate managerial discretion and reset executive compensation for the fresh CEOs. Such a theoretical research gap has leaded to a large number of failures in the issue of CEO change. In order to make up this gap, this book tries to investigate the relationship between managerial discretion and executive compensation under the conditions of CEO change, which can not only practically guide the re-balancing of the corporate governance and further improve the success possibility of CEO change, but can theoretically enrich the contributions in managerial discretion approach and executive compensation theory.

Based on the comparative study perspective, by drawing on the data from Chinese listed companies as the sample and adopting the Correlation Analysis, Multiple Linear Regression and Hierarchical Models as the statistical analysis methods, the book investigates how managerial discretion, respectively for the fresh CEOs and the senior CEOs, manipulates each dimension of executive compensation, i.e. executive compensation level, CEO pay-performance sensitivity, executive compensation gap and executive-employee compensation gap. The book makes two valuable new findings: First, the book confirms that both the fresh CEOs and the senior CEOs have the motives and capabilities to manipulate each dimension of executive compensation, but varying by intent and intention; Second, the book proves that the fresh CEOs show higher firm-serving motives when they manipulate each dimension of executive compensation by performing managerial discretion, while the senior CEOs show relatively higher self-serving motives. Based on the research results, the book builds the fresh-keeping mechanisms of firm-serving motives of the fresh CEOs during their whole CEO tenure, which are of great meanings for the government, the scholars and the practitioners and so on. (Imprint: Nova)

Preface

Chapter 1. Book Introduction

Chapter 2. An Exploratory Study on the Link Between Managerial Discretion and Managerial Power

Chapter 3. A Comparative Study on the Manipulation Effects of Managerial Discretion on Executive Compensation Level Between the Fresh CEOs and the Senior CEOs

Chapter 4. Effects of Managerial Discretion on CEO Pay-Performance Sensitivity: The Moderating Role of CEO Tenure

Chapter 5. Effects of Managerial Discretion on Executive Compensation Gap: The Moderating Role of CEO Tenure

Chapter 6. Manipulation Effects of Managerial Discretion on Executive-Employee Pay Gap: A Comparative Study Between the Senior CEOs and the Fresh CEOs

Chapter 7. Fresh-Keeping Mechanisms of the Fresh CEOs' Firm-Serving Motives in Performing Managerial Discretion

Author's Contact Information

Index

Chapter 1

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Chapter 2

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Chapter 3

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Chapter 6

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[2] Philip Molyneux, Linh, H., Nguyen. & Xiaoxiang, Zhang. (2014). Executive Compensation, Board Independence and Bank Efficiency in China: The Effects of the Financial Crisis, Working paper, WP N14-010, University of St Andrews, School of Management.
[3] Yubo, Lia., Fang, Loub., Jiwei, Wangc. & Hongqi, Yuand. (2013). A survey of executive compensation contracts in China’s listed companies, China Journal of Accounting Research, Vol. 6, No. 3, pp. 211-231.
[4] HONG, KONG. (2008). Executive compensation in China: False options, Sep 4th, Available in: http://www.economist.com/node/12070705.
[5] Zou, H. L., Zeng, S. X., Lin, H. & Xie, X. M. (2015). Top executives’ compensation, industrial competition, and corporate environmental performance: Evidence from China, Management Decision, Vol. 53 No. 9, pp.2036-2059.
[6] Zhu, Y., Tian, G. Gang. & Ma, S. (2009). Executive compensation, board characteristics and firm performance in China: the impact of compensation committee, 22nd Australasian Finance and Banking Conference (pp.1-48). Sydney, Australia: Social Science Electronic Publishing, Inc.
[7] Desai, S. D., Palmer, D., George, J. & Brief, A. (2011). When executives rake in millions: the callous treatment of lower level employees, SSRN Electronic Journal., available at http://ssrn.com/abstract=1612486.
[8] Mcfarlane, D. A. (2015). Gaps in executive and worker compensation as an organizational and management challenge, Journal of Entrepreneurship & Business Innovation, Vol. 2, No. 1, pp.1-15.
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[21] Gomez-Mejia, L. R. & Wiseman, R. M. (1997). Reframing executive compensation: An assessment and outlook. Journal of Management, Vol. 23, pp.291-375
[22] Core, J. and Larcker, D. (2002). Performance consequences of mandatory increases in executive stock ownership. Journal of Financial Economics, Vol.64, pp. 317–340.
[23] Bebchuk, L. A. & Fried, J. M. (2005). Pay without performance: overview of the issues, Journal of Corporation Law, Vol. 17, No. 4, pp. 8-23.
[24] Gümbel, Alexander. (2006). Managerial Power and Executive Pay, Oxford Journal of Legal Studies, Vol. 26, No. 1, pp. 219-233.
[25] Lu, R. (2007). Managerial power, compensation gap and performance, South China Journal of Economics, No. 7, pp. 60-70. (In Chinese)
[26] Fang, J. X. (2011). Managerial power and asymmetry of compensation change in china's public companies, Economic Research Journal, No. 4, pp.107-120. (in Chinese)
[27] Dai, B. & Peng, C. (2012). Executive control rights, capital expansion and financial risk—evidence from state-owned listed companies in china. Research on Economics & Management, No. 5, pp. 20-30. (In Chinese)
[28] Shin, Taekjin. (2008). Working in Corporate American: Dynamics of Pay at Large Corporations, 1992-2005, Doctoral Dissertation in University of California, California.
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[30] Li, You-gen. (2002). Study on the managerial discretion in Corporate Governance, Doctoral Dissertation, School of Management, Xi’an Jiaotong University, Xi’an.
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[33] Zhang, Changzheng. & Li, Yang. (2012). Manipulation effects of managerial discretion on executive compensation level: Taking monitoring intensity as the moderating variable, Scientific Management Research, Vol. 1, No. 1, pp. 8-17. (In Chinese)
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Chapter 7

[1] Larry, Li, Tony, Naughton. & Martin T. Hovey. (2008). A Review of Corporate Governance in China, SSRN Electronic Journal, No. 08, DOI: 10.2139/ssrn.1233070.
[2] Stella, Cho. & Oliver, M. Rui. (2009). Exploring the Effects of China’s Two-tier Board System and Ownership Structure on Firm Performance and Earnings Informativeness, Asia-Pacific Journal of Accounting & Economics, Vol.16, pp. 95-118.
[3] Heibatollah, Sami., Justin, Wang. & Haiyan, Zhou. (2011). Corporate governance and operating performance of Chinese listed firms, Journal of International Accounting Auditing and Taxation, Vol. 20, No. 2, pp. 106-114.
[4] Bryan, Hong., Zhichuan, Li. & Dylan, Minor. (2015). Corporate Governance and Executive Compensation for Corporate Social Responsibility, Harvard Business School Working Paper, Working Paper 16-014.
[5] Dittman, I., Maug, E. & Spalt, O. (2010). Sticks or carrots? Optimal CEO compensation when managers are loss averse, Journal of Finance, Vol. 65, pp. 2015-2050.
[6] Doidge, C., Karolyi, A. & Stulz, R. (2007). Why do countries matter so much for corporate governance? Journal of Financial Economics, Vol. 86, pp. 1-39.
[7] Eriksson, T. (1999). Executive compensation and tournament theory: Empirical tests on Danish data, Journal of Labor Economics, Vol. 17, pp. 262 - 280.
[8] Fernandes, N., Ferreira, M., Matos, P. & Murphy, K.J. (2012). Are U.S. CEOs paid more? New international evidence, SSRN paper, Available at SSRN: http:// ssrn.com/abstract=2159119.
[9] Renée, B., Adams, Benjamin., E, Hermalin. & Michael, S. Weisbach. (2010). The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey, Journal of Economic Literature, Vol. 48, No. 1, pp. 58-107.
[10] Gerald, E., Ledford, Jr., Barry, Gerhart. & Meiyu, Fang. (2013). Negative Effects of Extrinsic Rewards on Intrinsic Motivation: More Smoke Than Fire, WorldatWork Journal, Second Quarter, pp. 18-29.


The book is of good meanings for the government departments which are in charge of monitoring the enterprises, the scholars both in the corporate governance and strategic human resource management, and the practitioners (middle-to-top managers) in the non-financial industries.

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