Justifying top management pay in a transitional economy

We investigate some aspects of top management pay in China\u27s listed firms. We find positive pay and performance sensitivities and elasticities for top executives. In terms of magnitude, these sensitivities are similar to those reported in U.S. firms during the 1970s. However, the pay and performance relation is slightly weaker for firms located in less developed provinces. We also find that the pay disparities between top managers and employees are positively related to a firm\u27s performance. Thus, it appears that any deviation away from a manager-worker compensation norm has to be justified by superior firm performance. In additional analyses, we find that managers\u27 perquisites are not related to performance

Corporate Governance, Measurement of

The increased focus on good governance and the development of best practice guidelines, often supported by legislation, has been in response to corporate scandals, such as Enron and Worldcom in the early 2000s, and the 2008 banking crisis. Good governance is increasingly recognised as a process where the ‘best practices\u27 of yesterday become the standard practices of today. This increased focus has also coincided with a worldwide movement for corporate reporting on sustainability and corporate social responsibility (CSR) issues and a growing demand within the investment industry for investment products that are socially responsible (Benn and Dunphy 2013). Sustainable development is now part of the best practice model of corporate governance. There is a more equal recognition of stakeholders’ interests and the role of not only economic, but also social and environmental issues in laying the foundations for a new long-term model of economic growth. This is in contrast to the historic governing model that focused on the creation of shareholder value. However, despite increased attention and interest by policymakers and academics alike, a challenge that has not been unanimously resolved is the definition and measurement of ‘good corporate governance’. This chapter evaluates the main approaches to the measurement of corporate governance

Ascertaining the notion of board accountability in Chinese listed companies

Accountability is a concept that has been frequently referred to in Anglo-American systems and in the OECD’s corporate governance documents, as well as in the English translations of corporate governance documents from non-English speaking jurisdictions. It is in the Anglo-American literature, in particular, where the word finds prominence. It has been suggested in China that accountability is one of the basic principles of corporate governance that needs to be consistently enforced. But does this mean that board accountability, as it has been provided for in the Anglo-American system, is actually an element of Chinese corporate governance? If not, should it be adopted? Or should China develop a concept that is more appropriately included as a critical part of its own particular corporate governance needs? The paper aims to address these matters in order to ascertain where Chinese corporate governance stands on accountability as far as the boards of large listed companies are concerned, and what it should do. We opine that while there are elements of accountability in Chinese corporate governance, it does not have the form of accountability embraced in Anglo-American systems. But, it is argued, as China moves from having a system totally based on administrative governance to one that is based more on economic governance the kind of approach that applies in Anglo-American jurisdictions is likely to become more relevant. Within a hybrid corporate governance system combining elements of both administrative and economic governance, we develop a unique “wenze system” with forms and characters of accountability that is likely to develop to address the needs of corporate governance in China and the fostering of its listed companies

CEO Compensation

This paper surveys the recent literature on CEO compensation. The rapid rise in CEO pay over the past 30 years has sparked an intense debate about the nature of the pay-setting process. Many view the high level of CEO compensation as the result of powerful managers setting their own pay. Others interpret high pay as the result of optimal contracting in a competitive market for managerial talent. We describe and discuss the empirical evidence on the evolution of CEO pay and on the relationship between pay and firm performance since the 1930s. Our review suggests that both managerial power and competitive market forces are important determinants of CEO pay, but that neither approach is fully consistent with the available evidence. We briefly discuss promising directions for future research

Company ‘Emigration’ and EC Freedom of Establishment: Daily Mail Revisited

Following the ECJ’s recent case law on EC freedom of establishment (the Centros, Überseering and Inspire Art cases), regulatory competition for corporate law within the European Union takes place at an early stage of the incorporation of new companies. In contrast, as regards the ‘moving out’ of companies from the country of incorporation, the ECJ once considered a tax law restriction against the transfer abroad of a company’s administrative seat as compatible with EC freedom of establishment (the Daily Mail case). For years, this decision has been regarded as applicable to all restrictions imposed by countries of incorporation, even the forced liquidation of the ‘emigrating’ company. This paper addresses the question whether EC freedom of establishment really allows Member States to place any limit on the ‘emigration’ of nationally registered companies. It argues that EC freedom of establishment covers the transfer of the administrative seat as well as the transfer of the registered office and, therefore, that the country of incorporation cannot liquidate ‘emigrating’ companies. In addition, it addresses the question whether a new Directive is needed to allow the transfer of a com- pany’s registered office and the identity-preserving company law changes. It argues that such a Directive is necessary to avoid legal uncertainty and to protect the interests of employees, creditors and minority shareholders, among others, who could be detrimentally affected by the ‘emigration’ of national companies

Estimating the Cost of Executive Stock Options: Evidence from Switzerland

It is often argued that Black-Scholes (1973) values overstate the subjective NEWLINE value of stock options granted to risk-averse and under-diversified executives. NEWLINE We construct a “representative” Swiss executive and extend the certainty- NEWLINE equivalence approach presented by Hall and Murphy (2002) to assess NEWLINE the value-cost wedge of executive stock options. Even with low coefficients NEWLINE of relative risk aversion, the discount can be above 50% compared to the NEWLINE Black-Scholes values. Regression analysis reveals that the equilibrium level NEWLINE of executive compensation is explained by economic determinant variables NEWLINE such as firm size and growth opportunities, whereas the managers’ pay-forperformance NEWLINE sensitivity remains largely unexplained. Firms with larger NEWLINE boards of directors pay higher wages, indicating potentially unresolved NEWLINE agency conflicts. We reject the hypothesis that cross-sectional differences in NEWLINE the amount of executive pay vanish when risk-adjusted values are used as NEWLINE the dependent variable

Not Just Efficiency: Insolvency Law in the EU and Its Political Dimension

Certain insolvency law rules, like creditors’ priorities and set-off rights, have a distributive impact on creditors. Distributional rules reflect the hierarchies of values and interests in each jurisdiction and, as a result, have high political relevance and pose an obstacle to reforming the EU Insolvency Regulation. This paper will show the difficulty of reform by addressing two alternative options to regulate cross-border insolvencies in the European Union. The first one is the ‘choice model’, under which companies can select the insolvency law they prefer. Although such a model would allow distressed firms to select the most efficient insolvency law, it would also displace Member States’ power to protect local constituencies. The choice model therefore produces negative externalities and raises legitimacy concerns. The opposite solution is full harmonisation of insolvency law at EU level, including distributional rules. Full harmonisation would have the advantage of internalising all externalities produced by cross-border insolvencies. However, the EU legislative process, which is still based on negotiations between states, is not apt to decide on distributive insolvency rules; additionally, if harmonisation includes such rules, it will indirectly modify national social security strategies and equilibria. This debate shows that the choice regarding power allocation over bankruptcies in the EU depends on the progress of European integration and is mainly a matter of political legitimacy, not only of efficiency