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The use of nonfinancial performance measures in CEO bonus compensation

机译：在CEO奖金中使用非财务绩效指标

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Research Question/IssueIn this study, we explore the relationship between the use of nonfinancial performance measures in Chief Executive Officer (CEO) bonus plans and CEO power, moderated by compensation committee monitoring. Furthermore, we investigate whether the inclusion of nonfinancial performance measures is associated with higher CEO bonus pay sensitivity to shareholder returns.Research Findings/InsightsUsing a sample of FTSE 350 firms during the period 20072013, we find that CEO power is significantly negatively related to the propensity of using nonfinancial performance measures. This negative relationship, however, is moderated by higher levels of compensation committee monitoring. We also find that firms combining nonfinancial and financial performance measures in CEO bonus plans tend to have stronger CEO bonus pay sensitivity to shareholder returns than firms using financial measures alone. Thus, our results suggest that boards of directors adopting nonfinancial performance measures are able to better align CEO incentives with shareholder interests. We find similar results when using the weight of nonfinancial performance measures in the bonus plan in our analyses.Theoretical/Academic ImplicationsThis study empirically supports the managerial power theory whereby powerful CEOs influence the choice of performance measures in their bonus plans. However, effective compensation committees are found to attenuate the influence of powerful CEOs and to better align their interests with those of shareholders. Our result of stronger bonus pay sensitivity to shareholder returns for firms combining nonfinancial with financial performance measures implies that the informativeness of these measures enhances the firm's ability to tie CEO bonus compensation to shareholder wealth.Practitioner/Policy ImplicationsThis study offers insights to members of boards of directors, especially compensation committee members, who are interested in improving the design of executive incentive contracts to better align managerial incentives to shareholder interests. Furthermore, the findings inform regulators about the importance of alternative performance measures in payperformance sensitivity and may warrant increased firm disclosure of the details of the pay structure.
机译：研究问题/问题在本研究中，我们探讨了在首席执行官薪酬计划中使用非财务绩效指标与首席执行官权力之间的关系，并通过薪酬委员会的监督来加以调节。此外，我们调查了纳入非财务绩效指标是否与更高的CEO奖金支付对股东回报的敏感性有关。研究结果/见解使用20072013年期间富时350公司的样本，我们发现CEO权力与这种倾向显着负相关使用非财务绩效指标。但是，这种较高的补偿委员会的监督可以缓解这种消极的关系。我们还发现，与仅使用财务指标的公司相比，将非财务和财务绩效指标结合到CEO奖金计划中的公司往往具有更高的CEO奖金薪酬对股东回报的敏感性。因此，我们的结果表明，采用非财务绩效指标的董事会能够使CEO激励与股东利益更好地保持一致。我们在分析中在奖金计划中使用非财务绩效指标的权重时也发现了类似的结果。理论/学术意义这项研究从经验上支持了管理权力理论，即强大的CEO在其奖金计划中影响绩效指标的选择。但是，发现有效的薪酬委员会可以削弱强大的首席执行官的影响力，并使他们的利益与股东的利益更好地保持一致。我们将非财务和财务绩效指标相结合的公司对股东回报的奖金支付敏感性增强的结果表明，这些指标的信息性增强了公司将CEO奖金补偿与股东财富联系起来的能力。从业人员/政策含义本研究为董事会成员提供了见解有兴趣改善行政激励合同设计，使管理激励与股东利益保持一致的董事，特别是薪酬委员会成员。此外，调查结果告知监管机构有关替代绩效衡量指标对薪酬绩效敏感性的重要性，并可能需要加强公司对薪酬结构细节的披露。

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