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SOCIAL SCIENCE RESEARCH NETWORK
EMPLOYEE BENEFITS, COMPENSATION & PENSION LAW ABSTRACTS
Sponsored by Pension Governance, LLC
Vol. 8, No. 12: April 5, 2007
Editor: PAMELA J. PERUN
Program Director, Initiative on Financial
Security, Aspen Institute
PAMELA@PLANETNOW.COM
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Topic of This Issue:
Executive Compensation
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T A B L E O F C O N T E N T S
"Stock Option Plans, Management Earnings Guidance, and a Firm's
Information Environment"
LYNN L. REES
University of Houston - Department of Accountancy &
Taxation
ANUP SRIVASTAVA
Texas A&M University - Department of Accounting
SENYO Y. TSE
Texas A&M University - Lowry Mays College & Graduate
School of Business
"CEO Compensation and Director Networks"
ILAN GUEDJ
University of Texas at Austin - Department of Finance
AMIR BARNEA
University of Texas at Austin - Red McCombs School of
Business
"Deferred Compensation Revisited"
DANIEL I. HALPERIN
Harvard Law School
ETHAN YALE
Georgetown University - Law Center
"Inside the Black Box: The Role and Composition of Compensation
Peer Groups"
MICHAEL W. FAULKENDER
Washington University, St. Louis - John M. Olin School
of Business
JUN YANG
Indiana University
"What Can We Learn from Privately Held Firms About Executive
Compensation?"
REBEL A. COLE
DePaul University - Department of Finance
HAMID MEHRAN
Federal Reserve Bank of New York
"Executive Compensation in Socially Responsible Firms"
MELISSA B. FRYE
University of Central Florida - College of Business
Administration
EDWARD F. NELLING
Drexel University - Department of Finance
ELIZABETH WEBB
Federal Reserve Bank of Philadelphia
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"Stock Option Plans, Management Earnings Guidance, and a Firm's
Information Environment"
Author: LYNN L. REES
University of Houston - Department of Accountancy &
Taxation
Email: rees@uh.edu
Auth-Page: http://ssrn.com/author=51304
Co-Author: ANUP SRIVASTAVA
Texas A&M University - Department of Accounting
Email: asrivastava@cgsb.tamu.edu
Auth-Page: http://ssrn.com/author=375681
Contact: SENYO Y. TSE
Texas A&M University - Lowry Mays College &
Graduate School of Business
Email: st24@tamu.edu
Auth-Page: http://ssrn.com/author=329240
Full Text: http://ssrn.com/abstract=898303
ABSTRACT: Recent studies suggest that earnings guidance frequency
increases with option compensation, but provide mixed evidence on
whether managers attempt to increase the value of their options
by issuing negative information before stock option grants. We
extend this research by investigating the joint effects of three
stock option plan features (grants, exercises, and holdings) on
the frequency and direction of earnings guidance. We find that
guidance frequency increases with stock option features. We also
find that the guidance direction (downward, neutral, or upward)
is consistent with opportunistic behavior to increase option
compensation. However, we find no evidence that the resulting
guidance is biased or that managers' seemingly selective
disclosures harm investors by reducing analysts' forecast
accuracy. Indeed, stock option plans are associated with
increased analyst forecast accuracy, consistent with reduced
information asymmetry between managers and investors for firms
with stock option plans.
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"CEO Compensation and Director Networks"
Contact: ILAN GUEDJ
University of Texas at Austin - Department of
Finance
Email: guedj@mail.utexas.edu
Auth-Page: http://ssrn.com/author=354562
Co-Author: AMIR BARNEA
University of Texas at Austin - Red McCombs School
of Business
Email: amir.barnea@mccombs.utexas.edu
Auth-Page: http://ssrn.com/author=76120
Full Text: http://ssrn.com/abstract=966555
ABSTRACT: This paper argues that tied social networks of
directors among the corporate elite affect CEO compensation.
Using data on 25,621 unique directors who served on the boards of
S&P 1,500 firms between the years 1996-2004, we map the social
network of directors, and generate three different measures that
account for each director's importance in the network. We find
that firms that have more connected directors, i.e., whose
directors are more central in the network, award their CEOs
higher compensation. Controlling for firm size, investment
opportunities, industry, and performance, a CEO of a firm in the
top quintile of connected firms receives salary and total
compensation that are 11% and 13% higher, respectively, than
those of a CEO of a firm in the bottom quintile of connected
firms. Moreover, the well-connected directors are more likely to
be awarded more directorships in the future. These results
highlight the impact social networks can have on the inner
workings of boards and in turn on firm governance.
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"Deferred Compensation Revisited"
Georgetown Law and Economics Research Paper No. 969074
Georgetown Public Law Research Paper No. 969074
Author: DANIEL I. HALPERIN
Harvard Law School
Auth-Page: http://ssrn.com/author=97830
Contact: ETHAN YALE
Georgetown University - Law Center
Email: edy@law.georgetown.edu
Auth-Page: http://ssrn.com/author=385377
Full Text: http://ssrn.com/abstract=969058
ABSTRACT: The tax rules governing deferred compensation, codified
at section 409A, are harsh and complex. The rules are focused on
the least important policy considerations and overlook the most
important. Professors Halperin and Yale suggest a different
approach, one that would make the law simpler, fairer, and more
effective.
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"Inside the Black Box: The Role and Composition of Compensation
Peer Groups"
Contact: MICHAEL W. FAULKENDER
Washington University, St. Louis - John M. Olin
School of Business
Email: faulkender@olin.wustl.edu
Auth-Page: http://ssrn.com/author=294851
Co-Author: JUN YANG
Indiana University
Email: jy4@indiana.edu
Auth-Page: http://ssrn.com/author=581301
Full Text: http://ssrn.com/abstract=972197
ABSTRACT: This paper documents the features of compensation peer
groups and demonstrates that they play a significant role in
determining CEO compensation. Anecdotally, we know that
compensation peer groups have had a growing role in determining
executive compensation but only recently have firms begun
voluntarily disclosing the members of these peer groups. To
empirically test their role, we hand-collect a sample of 83 of
the S&P 500 firms that provided explicit lists of compensation
peer firms in their fiscal 2005 disclosures. Results show that
inclusion of the group's median compensation more than triples
the portion of the variation in CEO cash compensation that can be
explained, dominating measures such as size and firm performance.
The average peer group has more than eleven firms in it with just
over half of them coming from the same 3-digit SIC as the firm.
Univariate analysis suggests that firms forego lower paid
potential peers in their same industry in favor of higher paid
peers outside of their industry when constructing the peer
groups. In multivariate regression analysis, this result carries
through as we find that even after controlling for industry and
relative size, peer group composition is significantly affected
by the level of compensation of the potential peers. Firms appear
to select high paid peers as a mechanism to increase CEO
compensation and this effect is strongest in firms with low GIM
index values, low E-scores, and low blockholder ownership. We
conclude that in firms with weak internal governance, CEOs are
most able to create benchmarks (compensation peer group
compositions) that help generate higher compensation for
themselves. Given that disclosure of peer group composition had
until recently been voluntary, our results are likely to
underestimate the extent to which peers are selected by
characteristics seemingly unrelated to managerial performance or
their reservation wage.
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"What Can We Learn from Privately Held Firms About Executive
Compensation?"
Contact: REBEL A. COLE
DePaul University - Department of Finance
Email: rcole@depaul.edu
Auth-Page: http://ssrn.com/author=15769
Co-Author: HAMID MEHRAN
Federal Reserve Bank of New York
Email: Hamid.Mehran@ny.frb.org
Auth-Page: http://ssrn.com/author=15840
Full Text: http://ssrn.com/abstract=970389
ABSTRACT: This study examines the determinants of CEO
compensation using data from a nationally representative sample
of privately held U.S. corporations. We find that: (i) the
pay-size elasticity is much larger for privately held firms than
for the publicly traded firms on which previous research has
almost exclusively focused; (ii) executives at C-corporations are
paid significantly more than executives at S-corporations; (iii)
executive pay is inversely related to CEO ownership; (iv)
executive pay is inversely related to debt-service coverage; and
(v) executive pay is related to a number of CEO characteristics,
including age, education and gender. Executive pay is inversely
related to CEO age and positively related to educational
attainment. Finally, female executives are paid significantly
less than their male counterparts.
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"Executive Compensation in Socially Responsible Firms"
Corporate Governance: An International Review, Vol. 14, No.
5, pp. 446-455, September 2006
Author: MELISSA B. FRYE
University of Central Florida - College of Business
Administration
Email: melissa.frye@bus.ucf.edu
Auth-Page: http://ssrn.com/author=244591
Contact: EDWARD F. NELLING
Drexel University - Department of Finance
Email: NELLING@DREXEL.EDU
Auth-Page: http://ssrn.com/author=16631
Co-Author: ELIZABETH WEBB
Federal Reserve Bank of Philadelphia
Email: elizabeth.webb@phil.frb.org
Auth-Page: http://ssrn.com/author=350085
Full Text: http://ssrn.com/abstract=930768
ABSTRACT: This study examines chief executive officer (CEO)
compensation and turnover in socially responsible (SR) firms. We
compare characteristics of SR firms with a matched sample of
firms based on industry and size. Analysis of CEO compensation
indicates that the link between CEO pay and firm performance is
weaker for SR firms than for non-SR firms. CEO turnover tests
indicate that SR firms are more likely to experience CEO turnover
following poor performance. Stock option grants to CEOs of SR
firms do not appear to result in future risk-taking behaviour,
whereas such grants are significantly related to future risk at
non-SR firms.
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