The ABI Guidelines for Share-Based Incentive Schemes. Setting the hurdle too high?

This paper examines, from the perspective of the pay-performance connection, the guideline principles recently issued by the Association of British Insurers (ABI) in connection with the operation of share-based incentive schemes. The four main dimensions to these guidelines concern: (i) phasing of issue by use of regular awards; (ii) setting of performance criteria (hurdles) against a peer group or bench-mark; (iii) restricting any re-testing of satisfaction of such performance criteria; and (iv) instituting a sliding scale of reward contingent on the performance out-turn against criteria. Emphasis is also placed on the accounting recognition challenge of reporting to shareholders the expected value of such rewards. Results are derived from a simulation over a 14 year period of the implementation of such guidelines in a sample of companies traded on the London Stock Exchange. Empirical results suggest that the pay-performance connection is not always made stronger by setting the hurdle ever higher, and that higher hurdles are best tempered by generosity in terms of re-testing and re-issue of options. The saving of expense on such packages may be bought at the expense of a weakened pay-performance connection at board level

The Distribution of School-Leaver Unemployment Within Scottish Cities

Summary. This paper examines the phenomenon of intra-urban unemployment in the context of school-leaver unemployment in Scottish cities. Unlike much of the previous work in this area, the paper avoids the `ecological fallacy' by utilising data on individual school leavers from the 1981 Scottish School Leavers Survey in conjunction with detailed Small Area Statistics from the 1981 decennial Census. Probit analysis is employed to avoid certain statistical problems . The results indicate that in terms of employment probabilities there is little evidence of any `area effects' within Scottish cities . In this sense there is one urban labour market in which personal characteristics matter, but where area of residence is of little import. These findings were found to hold in Aberdeen, Dundee, Edinburgh and Glasgow. Within each of these cities the effects of inter-city variations in unemployment rates was found to fall disproportionately on the less qualified and less advantaged young job seekers

The Minimum Assumed Incentive Effect of Executive Share Options

In granting executive share options (ESOs), companies hand over financial assets to the executive at an opportunity cost that generally outweighs the value placed on those assets by the executive on the receiving end. This outcome can be explained by risk aversion on the part of the executives. For such transactions to make commercial sense, the difference in valuation must be at least made up by the impact of the incentive effects induced by compensating executives in this particular manner. This paper extends such a line of analysis to examine the executive's reward-risk trade-off, in addition to the certainty-equivalent pay-performance sensitivity and uses a UK data set to provide some estimates of the size of these effect

CEO pay, shareholder returns, and accounting profits

We assess the impact on CEO pay (including salary, cash bonus, and benefits in kind) of changes in both accounting and shareholder returns in 99 British companies in the years 1972-89. After correcting for heterogeneity biases inherent in the standard specifications of the problem, we find a strong positive relationship between CEO pay and within-company changes in shareholder returns, and no statistically significant relationship between CEO pay and within-company changes in accounting returns. Differences between firms in long-term average profitability do appear to have a substantial effect on CEO pay, while differences between firms in shareholder returns add nothing to the within-firm pay dynamics.These findings call into question the rationale for explicitly share-based incentive schemes

Heads I win, tails you lose? A career analysis of executive pay and corporate performance

The paper adopts a novel career perspective to examine theories of corporate control in the context of executive pay. Detailed career histories of boardroom executives in all FTSE 350 companies between 1996 and 2008 are utilised. The paper highlights the failure of existing arrangements to adjust pay outcomes where career performance is poor. The leading theoretical reasons for this disconnect, namely managerial power and neoinstitutionalism, are not consistent with the data. The paper identifies a settling-up process at work, whereby pay is adjusted in the light of both past pay and past performance. From a policy perspective, a case is made for adopting a cumulative or career-oriented approach to rewarding executive performance through the use of truly long-term incentives in the form of 'career shares'

The SOLAS air-sea gas exchange experiment (SAGE) 2004

Author Posting. © The Author(s), 2010. This is the author's version of the work. It is posted here by permission of Elsevier B.V. for personal use, not for redistribution. The definitive version was published in Deep Sea Research Part II: Topical Studies in Oceanography 58 (2011): 753-763, doi:10.1016/j.dsr2.2010.10.015.The SOLAS air-sea gas exchange experiment (SAGE) was a multiple-objective study investigating gas-transfer processes and the influence of iron fertilisation on biologically driven gas exchange in high-nitrate low-silicic acid low-chlorophyll (HNLSiLC) Sub-Antarctic waters characteristic of the expansive Subpolar Zone of the southern oceans. This paper provides a general introduction and summary of the main experimental findings. The release site was selected from a pre-voyage desktop study of environmental parameters to be in the south-west Bounty Trough (46.5°S 172.5°E) to the south-east of New Zealand and the experiment conducted between mid-March and mid-April 2004. In common with other mesoscale iron addition experiments (FeAX’s), SAGE was designed as a Lagrangian study quantifying key biological and physical drivers influencing the air-sea gas exchange processes of CO2, DMS and other biogenic gases associated with an iron-induced phytoplankton bloom. A dual tracer SF6/3He release enabled quantification of both the lateral evolution of a labelled volume (patch) of ocean and the air-sea tracer exchange at the 10’s of km’s scale, in conjunction with the iron fertilisation. Estimates from the dual-tracer experiment found a quadratic dependency of the gas exchange coefficient on windspeed that is widely applicable and describes air-sea gas exchange in strong wind regimes. Within the patch, local and micrometeorological gas exchange process studies (100 m scale) and physical variables such as near-surface turbulence, temperature microstructure at the interface, wave properties, and wind speed were quantified to further assist the development of gas exchange models for high-wind environments. There was a significant increase in the photosynthetic competence (Fv/Fm) of resident phytoplankton within the first day following iron addition, but in contrast to other FeAX’s, rates of net primary production and column-integrated chlorophyll a concentrations had only doubled relative to the unfertilised surrounding waters by the end of the experiment. After 15 days and four iron additions totalling 1.1 tonne Fe2+, this was a very modest response compared to the other mesoscale iron enrichment experiments. An investigation of the factors limiting bloom development considered co- limitation by light and other nutrients, the phytoplankton seed-stock and grazing regulation. Whilst incident light levels and the initial Si:N ratio were the lowest recorded in all FeAX’s to date, there was only a small seed-stock of diatoms (less than 1% of biomass) and the main response to iron addition was by the picophytoplankton. A high rate of dilution of the fertilised patch relative to phytoplankton growth rate, the greater than expected depth of the surface mixed layer and microzooplankton grazing were all considered as factors that prevented significant biomass accumulation. In line with the limited response, the enhanced biological draw-down of pCO2 was small and masked by a general increase in pCO2 due to mixing with higher pCO2 waters. The DMS precursor DMSP was kept in check through grazing activity and in contrast to most FeAX’s dissolved dimethylsulfide (DMS) concentration declined through the experiment. SAGE is an important low-end member in the range of responses to iron addition in FeAX’s. In the context of iron fertilisation as a geoengineering tool for atmospheric CO2 removal, SAGE has clearly demonstrated that a significant proportion of the low iron ocean may not produce a phytoplankton bloom in response to iron addition.SAGE was jointly funded through the New Zealand Foundation for Research, Science and Technology (FRST) programs (C01X0204) "Drivers and Mitigation of Global Change" and (C01X0223) "Ocean Ecosystems: Their Contribution to NZ Marine Productivity." Funding was also provided for specific collaborations by the US National Science Foundation from grants OCE-0326814 (Ward), OCE-0327779 (Ho), and OCE 0327188 OCE-0326814 (Minnett) and the UK Natural Environment Research Council NER/B/S/2003/00282 (Archer). The New Zealand International Science and Technology (ISAT) linkages fund provided additional funding (Archer and Ziolkowski), and the many collaborator institutions also provided valuable support