The effect of cultural distance on contracting decisions: The case of executive compensation (original) (raw)
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Globalization and Executive Compensation
2017
This paper identifies globalization as a factor behind the rapid increase in executive compensation and inequality over the last few decades. Employing comprehensive data on top executives at major U.S. companies, we show that compensation is higher at more global firms. We find that pay responds not only to firm size and technology but also to exports conditional on other firm characteristics. Export shocks that are not related to the executive's talent and actions also increase executive compensation, indicating that globalization is influencing compensation through pay-for-non-performance. Furthermore, this effect is asymmetric, with executive compensation increasing due to positive export shocks but not decreasing due to negative shocks. Finally, export shocks primarily affect discretionary forms of compensation of more powerful executives at firms with poor corporate governance, as one would expect if globalization has enhanced rent-capture opportunities. Overall, these results indicate that globalization has played a more central role in the rapid growth of executive compensation and U.S. inequality than previously thought, and that both higher returns to top talent and rentcapture are important parts of this story.
International compensation: learning from how managers respond to variations in local host contexts
The International Journal of Human Resource Management, 2003
Managers and researchers recognize that the tensions created by the interplay of globalization and national environments influence the behaviours of multinational enterprises (MNBs). We develop a mode! lo help explain the eftecls of both global and local host environments on ihc design of managerial compensation systems in MNEs. We use a grounded theury-huitding prcKcss by integrating information we obtained from exploring the international compensation systems (ICS) of live MNEs. We extend two contemporary perspectives of IHRM -the national culture and strategic alignment models-and develop the idea that it is the relative degree of variation within and between local host contexts that is critical to understanding managers' ICS decisions. We present a different, pragmatic cxpeHmentation view of managers' ICS decision making, which we believe offers insights into how managers deal with the interplay between pressures to create aligned, integrated global systems and pressures to conform to local host contexts.
Transnational Roles and Transnational Rewards: Global Integration in Executive Compensation
International Human Resource Management and International Assignments, 2006
Illusions, particularly illusions that have contributed to organizational mythmaking, are persistent and not easily put to rest. Perhaps no greater and more enduring myth exists in North American management theory than the myth of the "generic manager"-a "one size fits all" manger that, once identified, can be progressively given increasingly important assignments with wider scope and attendant resource responsibility (Bartlett and Ghoshal, 2000: 761-762). According to the myth, once administrative competencies (leadership, vision, industry or discipline skills, etc.) are identified careers are then sculpted to progress to new stages of increasing size and scale over time. We label this myth, "the Myth of the Matryoshkas." Like the matryoshkas-Russian Dolls-that seemingly endlessly emerge from each other, so that "at each level of the hierarchy, the manager is similar but bigger [in size and scope of operational responsibility] than the manager a level below" (Bartlett and Ghoshal, 2000: 762). These generic managers share a typical US executive compensation system made up of four components: base salary, benefits, perks, shortterm incentives and long-term incentives (Milkovich and Newman, 2002: 498-502). Once inside the "executive club" these four components grow and expand with advanced responsibility. A fifth reward component, career development opportunities, has been added to a "total rewards" model, that characterizes the horizontal, hierarchical progression of these managers (O'Neal, 1998). This career development component is linear and vertical in the traditional "Russian Dolls" model-climbing the ladder to the top of the pyramid. This form of executive compensation system is explained and justified in terms of three models. Buying Wardrobes for the "Russian Dolls" The first justification of this model relates to the internal hierarchical nature of organizations to justify vertical internal pay differentials-the so-called "internal equity argument" for proportionality of differentials (Milkovich and Newman, 2002: 496; Wallace and Fay, 1988: Chapter 3). The internal equity argument helps explain base salary, benefits and perks as extreme versions of already existing hierarchically based pay systems. These pyramidal hierarchies create tournaments, in which winners at one level move up to the next level of play, and must be motivated by ever-greater prizes and payoffs. Internal tournament models only make sense to the degree that traits, skills and experiences associated with success at one level are indeed "generic" and therefore relevant at the next level in the hierarchy (Ghoshal and Bartlett, 1997: 211). While firms claim to have downsized, flattened, shed vertical layers and decentralized decision making between 1980 and 1999, CEO pay has gone from 42 times the average of workers' pay to 475 times the average of workers' pay (Business Week, 2000). Granted, much of this increase in CEO pay is based on the explosion of short and long-term incentive components and size effects due to mergers and consolidations over the period, yet still the gap is alarming in its variance.
Subnational institutional contingencies and executive pay dispersion
Asia Pacific Journal of Management, 2015
This study investigates the relationship between sub-national institutional contingencies and corporate social responsibility performance (CSRP). Sub-national institutional contingencies (SNICs) play a moderating role in the link between CSRP and corporate financial performance (CFP). Using data from all A-share Chinese companies listed on the Shenzhen and Shanghai exchanges for the period 2010 to 2015, ordinary least square (OLS) regression was used as a baseline methodology to draw inferences from the data. The study uses propensity score matching (PSM) to confirm the robustness and to tackle the possible issue of endogeneity. We find reliable evidence that SNICs have a positive and significant effect on CSRP. This positive relationship is more pronounced in cross-listed companies as compared to state-owned enterprises (SOEs) and in companies located in the more developed region. Moreover, SNICs moderate the positive relationship between CSRP and CFP. The relationship is stronger in firms that are non-SOEs, are non-cross-listed, and are from less-developed regions as compared to their counterparts. The findings provide implications for regulators and individual companies. Investment in corporate social responsibility (CSR) helps companies to achieve their primary objective (i.e., financial performance). With respect to practical implications, the study indicates that policymakers, executives, and managers should refrain from "one size fits all" CSR policies. Instead, they need to simultaneously evaluate the effects of regional development, cross-listing, and ownership characteristics. Considering weak social performance by firms that are from less developed regions, are non-cross-listed, and that are non-SOEs, policymakers and the government should improve information transparency and the regulatory framework, and provide these firms with incentives. This study also provides insights for other emerging economies, especially those going through extraordinary government interventions.
Frontiers in Psychology, 2015
In highly multicultural societies, the economic status hierarchy may come to mimic the hierarchy of global wealth, reinforcing social inequality by tying pay scales to national wealth. We investigated how nationality influences expectations of payment in the UAE. Participants reported how much they expected people to be paid and how much skill they were perceived to have by nationality. They also reported their perceptions of the national wealth of different countries. Participants generally expected Westerners to be paid more than Arabs, who would be paid more than Sub-Saharan Africans and Asians. Expectations about payment in private sector employment were driven by both actual and stereotyped differences in national wealth and skill, with non-Gulf Cooperation Council Arabs most likely to see national wealth as a factor explaining the economic hierarchy. These results suggest that people expect payment to be tied to national wealth, reflecting the global hierarchy on a microscale.
Regulation and the Globalization (Americanization) of Executive Pay
SSRN Electronic Journal, 2000
This paper analyzes the question of whether there is US-oriented convergence trend in international executive pay. After surveying the essential elements of the American pay paradigm, we consider market-oriented dynamics that could constitute a global compensation imperative. We find that it is difficult to predict how decisive these forces will be, in part because market factors do not tell the whole story. Rather, it is necessary to take into account several other variables, such as legal regulation and business culture.
One Size Does Not Fit All: Global Equity Compensation in the New World
Compensation & Benefits Review, 2004
he landscape for equity-based compensation has changed. For more than a decade, favorable stock market conditions and a generous accounting environment fueled rapid growth in the use of stock options and employee stock purchase plans (ESPPs). But then, companies endured a series of storms-a downturn in stock markets, persistent accounting questions, a raft of spectacular scandals, new legislation and reporting standards-all of which are forcing them to rethink the role of equity in their compensation mix. Such a task is always challenging, but it is especially so for global companies, which must, after all, operate in as many regulatory environments as they do countries. Especially under today's difficult economic conditions, the quest for cost efficiency, consistency and compliance demands discipline and resourcefulness. Stock Options in the United States Until now, for financial reporting purposes, most U.S. companies have generally been allowed to measure stock option expenses at the date of grant, without a negative impact on book earnings. Companies could still claim expenses, for corporate income tax purposes, equal to the net value of the shares delivered to their employees. This, of course, made stock options the perfect compensation delivery device in up markets. Favorable rules also existed for ESPPs. Companies were allowed to provide their employees with guaranteed stock purchase discounts without incurring accounting charges. Other types of corporate equity, such as grants of restricted stock, although providing slightly less generous treatment, were still advantageous. This favorable accounting treatment, however, has always had its critics. Many have complained that large amounts of zero-charge corporate equity transactions distort income statements to the point of making them unreliable as financial yardsticks. This view has gained tremendous mo-T