薪酬管理外文翻译--薪酬为效益而支付？政府章程和薪酬之间的关系
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本科毕业设计（论文）
外文参考文献译文及原文
学院经济管理学院
专业工商管理
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目录
摘要 (1)
1 简介 (2)
2SEC所公布的薪酬规则以及在162(m)章程中的I.R.C部分 (5)
3数据的收集 (6)
5 CEO的薪酬对股东所产生的影响 (6)
6持有人和股东的目标 (8)
7结论 (9)
薪酬为效益而支付？政府章程和薪酬之间的关系
出处：Journal of Financial Economics 62 (2001) 453–488
摘要
SEC 组织要求公开国会在1992～1993年间所制定的关于收入超过一百万美元薪酬的人员的税收决议, 即关于国内税中的税收代码为162(m)的税收的决议。我们在审查这些因章程的改变其薪酬结构也会发生变化的大小样本企业的证据时发现: 许多百万美元的企业都以减少了员工的薪酬来回应162(m)政策，同时发现，企业员工薪酬的增长率也普遍下降了。不仅如此，在1993年，企业的许多岗位也受到了该章程的影响。我们进一步发现，在1993年后，许多企业的奖金和总薪酬对股票的收益越来越敏感了。我们还发现：我们对其他的控制因素一旦影响了CEO们的工作热情，CEO对其财富的担心也会对企业的其他股东的财富产生影响。资料显示：那些收入处于在一百万美元附近或者高于一百万美元薪酬的CEO在1993～1996年间对章程的敏感性有增长的趋势。总之, 我们的研究结果显示, 一些企业会以减少了薪金来回应162(m)章程的出台。更加重要地是, 当企业受到了162(m)的影响，CEO的那些与企业效益相关的年薪所受到的影响也会随之增加。
关键词：CEO报酬，规章，合同，公司治理
1简介
CEO的薪酬最近常被公众和学术研究者进行评论，评论的焦点集中在：CEO 的薪酬和公司的业绩没有直接挂钩。像在1999年2月25 日, 政府委员会主席阿伦?Greenspan在国会的讲话就批评了当前的薪酬水平在正常的货币供给水平之外。尤其是,Greenspan认为:“我发现一个奇怪的现象，就是个别的CEO没有直接关心那些能够为他们创造价值的员工，尽管这些员工拥有很强的为企业增加财富的能力。”
Greenspan的担心不是最近才有的。例如Jensen和墨菲(1990), 分析和讨论了在70年代和80年代低水平的薪酬都直接导致了员工工作的低效率。然而最近证据表明，通过Jensen 和墨菲研究了这个问题，发现员工的工作表现受薪酬多寡的影响程度有增加的趋势。根据霍尔和Liebman (1998)提供的资料显示：从80年代初期开始，他们的样本企业中在最近的三年(1992-1994)，员工的工作表现受薪酬影响的敏感度有所增加。他们认为, CEO们近年来的薪酬已经达到了一个很高的水平。对这变动的一个振振有词的解释是,由于外部因素的作用，导致企业员工的工作表现受薪酬影响的敏感度增加了。约翰逊、Shackell (1997), 史密斯(1996), Strickland (1996)和Wahal (1996), 在90年代初期，与其他人, 一同提出了股东行动主义上升的理论。
1993年公众增加了对薪酬与工作表现相联系这种政策的关注，这是由SEC 组织在1993年要求公开的一种政策，这个政策要求超过一百万美元的CEO的薪酬必须扣除没有工作效益的那一部分薪酬，并将这一部分薪酬作为国内税上缴。[部分国内税收代码为162(m), 从此该部分定为162(m) ]。SEC组织透露这个政策的目的是,依照SEC在1992 年7月2 日的发布内容，首先薪酬将以一个更为清楚和更为简明的方式来发放，并且也将会将以一个对股东更有利的形式来发放。墨菲(1995)解释说, SEC在1992年主动将代理权进行改革的这个举动是对国会将CEO的薪酬和股东权利在参议院进行选票的一种公开叫板。
另外, 国会没有将162(m)设置成为一个收益机构的意图, 但是国会希望改变公司的第一意愿，当采取162(m)这个政策后, 议院和薪酬委员会接下来从以下几个方面来执行国会的意向:
最近,经过对公司的审查以后，决定执行这项薪酬政策。委员会相信,当扣除
了这部分税收后，高级主管过高的薪酬将会减少(除基于表现的报偿之外)，那么公司高级主管的薪金就可以控制在每年一百万美元以下。
薪酬改革可能意味着改变导致了薪酬合同的结构会发生变化，但经济政策对薪酬所产生的影响却是不会改变的。
米勒和Scholes (1982)在讨论薪酬合同上个人税的影响力时说：一些薪酬计划包含对个人税有积极意义的方案，因为当员工的个人税收等级高于公司的税收等级时，可以延迟支付薪酬，这对员工的薪酬是有积极意义的，因此暗示在设计薪酬合同时个人税能产生一定的积极效用。Hite、Long (1982)和Goolsbe (2000)也强调税法上的变化可能会影响到薪酬的支付。
在本文，我们求证那些章程的出台和162 (m)是否真的影响到薪酬的支付。首先，我们区分那些存在于ExecuComp数据库的、并且可能受162 (m)章程的影响的企业，并从此将其称为百万美元企业。我们定义了三个变量来别这种百万美元型企业。第一种变量是这样定义的：如果该企业CEO们的薪金在去年是超过一百万美元的, 虽然前几年和去年均是以同一种分配方式来获得薪酬，但前几年的薪酬是少于一百万美元的这样一种企业。霍尔和Liebman(2000)用了一个类似于受162(m)章程影响的企业的的情况来对各种企业进行识别。第二个变量是一个可变指标，如果公司的CEO在过去的几年里获得高于900,000美元的薪酬，同时假设没有其他的隐形收入。以这个可变量，我们打算获取一些企业来作为参考样本，要求这些企业是受到162(m)的影响，而且企业所要扣除的税收部分要达到一定的基准。第三, 我们用一个变量指标来定义这些企业，要求是这些企业的CEO在1992-1997期间的年现金收入要超过一百万美元(包括薪金和奖金)。这个广泛的定义囊括了我们进行研究的样本企业中相当大的一部分。总之, 我们的结果显示这三个定义对我们的研究是很适用的。
检验这些规章如何影响了CEO的薪酬，我们研究了以下陈述的五个提议。我们的主要研究结果如下:(1)薪酬水平的急剧上升是在制定了162(m)章程以后,这与国会的陈述是相反的。虽然职员的优先认股权的增加对薪酬的增加有很大的贡献，总薪酬的数量都增加了，而且实际上也并没有证据表明在1993年以后各种各样的薪酬的增长率下降了。（2)对效益的控制, 实际上薪酬在1993 年以后增加了, 但薪酬的增长率显着小于企业效益的增长率。(3)一个子公司将薪酬降
低到一百万美元以下, 我们发现企业是以减少员工的薪酬这个方式来以回应162(m)章程的。但同时我们还发现：这些企业的CEO们的总报酬并不伴随着员工薪酬的减少而减少。(4)所有企业和特别是那些受到162(m)影响的企业, 我们发现在1993 年后这些企业的奖金和总薪酬对股票收益的敏感度增加了。薪酬增加对股票收益的敏感性其实不应该归因于：因为股票持有价值的上升而导致薪酬价值的减少。(5)薪酬对公司效益极其敏感的一部分是, 特别是在1993年，当高级职员被授予优先认股权, 并成为其总报酬中重要的一个组成部分。总之, 这些结果告诉我们：薪酬委员将改变合同薪酬的结构这个建议纳入到162(m)的议程中去。另外，通过分析某些企业CEO薪酬的变化，我们发现：薪酬结构的改变对CEO经济上的影响是显著的。
在我们的文章的第一部份,我们强调员工每年的薪酬,应该将现金报酬和期权、股票相结合起来领取。在章程出台后, 分析每年的薪酬是如何发放这件事十分重要，这是因为: (1)薪酬理事委员对CEO每年的薪酬的发放方式有直接决定权；(2)股东、社会评论家、章程制定者, 以及许多早期的学术研究都把注意力集中在CEO们每年的薪酬上，而不是在CEO的产业持有权的价值变化上；(3)章程主要是关注薪酬如何发放的这个方面, 特别是现金报酬。我们依照由Jensen 所提供的资料认识到, 和墨菲(1990)、霍尔以及Liebman (1998)所说的一样：在本文的第二部份我们重点是讨论CEO的股票的期权之间的联系。我们和霍尔、Liebman研究CEO薪酬的变动与公司的效益相关时发现：CEO 对薪酬的敏感性高于股东对其股权的敏感性，这与Jensen 和墨菲在70年代和80 年代所得出的研究成果的相似。例如, 使用Jensen－Murphy统计或分享率, 被认为在CEO 财富上的一个美元的变化可以对公司产生$1,000上的变化, 1996年我们通过对小量样本企业的研究，得悉了CEO从大约$7到$25的股票分享率都会对每$1,000个股东利益产生影响。通过霍尔和Liebman的研究，发现：在90 年代薪酬对效益的敏感性比以前大大的增加了。更加重要的是,我们发现在1993年～1996年间，那些达到百万美元的企业的员工的薪酬对公司的效益显得尤为敏感。
本文的组织如下：在第二部分, 我们研究在SEC组织公布新的薪酬规则和162(m)后所发生的变化。在第三部分, 分析我们所得到的数据。第四部分提供我们在章程出台后对薪酬结构所产生的影响，薪酬水平及其增长率，以及薪酬对效
益的敏感性的研究结果。第五部分是评估章程对企业股票价格和CEO的薪酬的影响。在第六部分我们检验我们研究的结果是否正确。在第七部分是结论。
2SEC所公布的薪酬规则以及在162(m)章程中的I.R.C
部分
在90年代初期，由于公众对行政薪水的过度的关心, 行政报偿成为了一个热门的政治问题。因此,SEC组织在1992年3月接受了新的薪酬规则。根据新规则, 企业必需:(1)要将他们的财政收益和基准收益进行比较，并用表格和平面图的形式表示出来；(2)该表格还需要公布CEO的每年或者长期的薪酬水平；(3)提供对高级管理职员优先认股权的现值的估计；以及(4)提供一个薪酬委员会对企业效益的定性和定量的准确评估的报告。
研究人员审查了和这些规则相关的管理报告，他们认为管理人员在公开薪酬的这件事中担任一个很重要的角色。例如，墨菲(1996)通过研究管理人员在他们的股权减少的时候，发现管理人员更倾向于报告减少后的薪酬。按同样方法,Byrd(1998)以及Lewellen (1996)等人进行研究并报告说：管理者更倾向于以子公司的股票收益作为计算的基准。因而,他们讨论的结果是：管理者倾向于选择披露夸大公司效益的数据来获得更高的薪酬。
在1993年成为多项预算的一部分以后, 国会在1995年制定了162(m)国内税收部分的规则, 要求CEO和其它董事的薪酬必须扣除掉不履行应尽责任的那部分薪酬。新的雇员薪酬的包括在1993年2月13日所制定的那个薪酬规则，这个规则要求薪酬必须以企业的效益为基准，同时薪酬要以签订了有效合同为前提。为达到这个目的,薪酬要以效益为基础来进行分类，要求：(i)企业效益的目标应该由薪酬委员会来确定, (ii)效益的目标要股东投票来决定，(iii)在执行新的薪酬制度前，薪酬委员要确定这个效益目标是否能够使大部分人满意。
3数据的收集
我们从Poor's ExecuComp数据库中检索到想要的数据。这个数据库包括S&P 500，Midcap以及Smallcap的企业索引。薪酬数据被分为七个类别，在薪酬摘要表中包括薪金、奖金以及其它的每年的报酬(包括额外补贴和对税收的补偿), 有限的股票奖励、SARs，和长期刺激性计划的支出(LTIP)以及其它报酬。由七个部分组成的总薪酬都被列入到报告中。公布的规则要求企业为薪酬的每个组成部分提供在报偿表中的美元价值,以及提供在委托投票书中的ExecuComp报告。为了获得期票, 企业必须透露高级主管在报偿表中的报酬。我们还可以从CRSP文件检索帐户中检索关于股票收益的数据。我们还收集了薪酬委员会对CEO的薪酬的评估的信息。我们的测试如下, 我们比较在162(m)的出台前和出台后的薪酬状况。在162(m)的准备前期, 我们假设变量帮助我们进行测试, 我们只有1991 年, 1992年, 和1993年与岗位162(m) 数据是真实的、可比较的薪酬数据。这个数据局限了我们测试的可信度。
5CEO的薪酬对股东所产生的影响
现在,我们集中关注每年薪酬的发放方式(即, 薪金、奖金、有限的股票、高级职员优先认股权、长期刺激性计划支出,以及其它形式的报酬)。我们关注这些是因为薪酬批评家也在关注新规则下的薪酬发放方式。Jensen、墨菲(1990), 霍尔、Liebman (1998)以及墨菲(1999), 研究发现：CEO的薪酬、对股票的所有权是以公司的效益为基础来发放的。我们之前的研究结果表明：员工的薪酬结构和百万美元企业的CEO的薪酬对公司效益的敏感度都是会受到新章程的影响的, 一个关键的问题是当CEO的薪酬发生变化时，随之对该公司的股东的利益也会产生影响。
6 持有人和股东的目标
我们随后进行各种各样的测试，目的是检验我们的研究结果是否是真实可靠。我们将注意力集中在百万美元企业，因为他们最有可能受到章程的影响。我们现在研究那些百万美元企业之所以受到章程的影响的原因，是否因为他们和政府部门的关系紧密。而Core和其他人一起(1999)，研究了政策的出台对CEO薪酬的影响。同时我们也探索了百万美元企业的薪酬发放特征，得出的结论是：那些百万美元企业倾向于以降低CEO 对企业的控制力这个方式来发展成为更大规模的企业。当CEO对企业的控制力降低后，他们因为薪酬的多寡而对企业产生的影响也会相应降低了。
接下来，我们对表6进行分析：(i)企业的CEO对企业的控制力有所降低了(假设在1993年所有的参照企业的薪酬都处于同一水平)；(ii)股票分析家通过Strickland获得关于企业的数据，并将关注的重点放在那些目标企业当中，这是Wahal (1996)研究出来的结果。他们还研究出：在1993以后，无论是那些CEO 拥有高控制权的企业还是那些CEO拥有低控制权的企业，他们对股票收益的敏感性都增加了。总之, 这些结果都表明, 当1993年新规则出台以后，无论是百万美元企业还是其他企业，员工薪酬对公司效益的敏感性都增加了。这个结果与之前的研究结果相吻合，就是：162(m)章程的出台使员工的薪酬对公司效益产生了影响，以及那些CEO对拥有低控制力的企业的员工的薪酬也产生了影响。
7 结论
新的SEC报酬规则和162(m)章程出台的目的是减少CEO过高的薪酬水平和加强薪酬与效益之间联系。我们通过使用1991～1997 的CEO的薪酬数据来说明这个问题。我们发现：即使章程未能限制CEO薪酬的增长,可是该章程还是会对企业员工的薪酬结构产生重大的冲击。
我们同时研究：当CEO的薪酬减少了，即当他们的薪酬少于一百万美元后，对公司的其他员工的薪酬结构也会产生的冲击。25 个企业当中的23个受到了162(m)章程的影响, 然而, 这些企业员工的总薪酬还是有所增加。我们同时发现在1993年以后，企业的股票收益、员工的奖金和总薪酬三者的联系增加了。我们发现尤其是百万美元企业受到法律的影响更大。有力的实验证明了：员工薪酬和公司效益之间的联系确实是增加了。
通过进一步的研究发现：162(m)章程对我们的大企业也是有影响的, 我们还通过三个方面来研究大企业CEO的薪酬敏感性和企业效益之间的关系。再有，我们通过对百万美元企业的员工的薪酬研究时发现：相对其它企业而言, 从1993年到1996 年间，百万美元企业的CEO的薪酬敏感性对其他股东财富所产生的影响力增加了。总之, 我们的研究结果是，薪酬委员会应该先考虑企业的管理环境，并且防止新的章程的出台对员工的薪酬和企业的效益产生经济冲击。
Pay for performance? Government regulation and the
structure of compensation contracts
Tod Perrya, Marc Zenner
Journal of Financial Economics 62 (2001) 453–488
Abstract
In 1992–1993, the SEC required enhanced disclosure on executive compensation and Congress enacted tax legislation limiting the deductibility of non-performance related compensation over one million dollars, i.e. Internal Revenue Code Section 162(m). We examine the effects of these regulatory changes and report small and large sample evidence that many million-dollar firms have reduced salaries in response to 162(m) and that salary growth rates have declined post-1993 for the firms most likely to be affected by the regulations. We further document that bonus and total compensation payouts are increasingly sensitive to stock returns after 1993, especially for firms with million-dollar pay packages. We also document that, once we control for other factors affecting CEO incentives, the sensitivity of the CEO's wealth to changes in shareholder wealth has increased from 1993 to 1996 for firms with CEOs near or above the million dollar compensation level. Overall, our results suggest that some firms have reduced salaries in response to 162(m). More importantly, the pay for performance sensitivity, measured using total annual compensation and firm-related CEO wealth, has increased for firms likely to be affected by 162(m).
Author Key words: CEO compensation ; Regulation; Contracts; Corporate governance
1. Introduction
CEO compensation has received recent public and academic scrutiny with most of the controversy focused on rising CEO compensation levels and on the absence of a strong relation between executive compensation and firm performance. As recently
as February 25, 1999, Board of Governors’ Chairman Alan Greenspan criticized the current executive compensation levels in Capitol Hill testimony on the state of monetary policy. Specifically, Greenspan s aid, “I find a lot of what is being paid to individual CEOs not directed to the value that they are producing for their shareholders, who are paying the bill.”
Greenspan's concern is not new. Jensen and Murphy (1990), for example, analyze and discuss the low pay for performance sensitivity in the 1970s and 1980s. Recent evidence, suggests, however, that the pay for performance sensitivity may have increased since Jensen and Murphy studied the issue. Hall and Liebman (1998) document that the pay for performance sensitivity has increased since the early 1980s, with a striking acceleration in the last three years of their sample (1992–1994). They conclude that in recent years CEOs have not been paid like bureaucrats. One plausible explanation for this change is that the increasing pressure from outside investors on boards of directors has led to increased sensitivity of executive pay to firm performance. Johnson and Shackell (1997), Smith (1996), Strickland et al. (1996), and Wahal (1996), amongst others, document the rise in shareholder activism in the early 1990s.
The increased public attention on the pay for performance relation resulted in regulatory intervention by the SEC in 1993 requiring enhanced disclosure on executive compensation and the enactment of tax legislation limiting the deductibility of nonperformance related compensation over one million dollars [Section 162(m) of the Internal Revenue Code, henceforth Section 162(m) or 162(m)]. The purpose of the new SEC disclosure requirements, as stated in the SEC's first release on July 2, 1992, was to make disclosure of compensation paid or awarded to executive officers clearer and more concise, and of greater utility to shareholders. Murphy (1995) explains that the SEC's 1992 proxy reform initiative was a response to the public outcry on executive compensation and a proposed Senate bill on shareholder rights and CEO compensation.
In addition, Congress never intended for Section 162(m) to be a revenue-raising provision, but instead Congress hoped to change corporate behavior.1 When adopting
162(m), the House Ways and Means Committee stated the congressional intent in the following way:
Recently, the amount of compensation received by corporate executives has been the subject of scrutiny and criticism. The committee believes that excessive compensation will be reduced if the deduction for compensation (other than performance-based compensation) paid to the top executives of publicly held corporations is limited to $1 million per year.2
Changing behavior could mean that the changes have led to real economic effects or that the compensation contracts are cosmetically different but that the economic effects are unchanged. Miller and Scholes (1982) examine the influence of personal taxes on compensation contracts and argue that some compensation plans are tax-advantageous schemes because they defer payments for employees in tax brackets that are higher than the corporation's tax bracket, therefore implying that personal taxes at the very least have a cosmetic effect on the design of compensation contracts. Hite and Long (1982) and Goolsbe (2000) also highlight how changes in tax laws can affect compensation policy.
In this paper, we examine whether the enhanced disclosure rules and 162(m) have actually changed compensation behavior. First, we identify firms from the ExecuComp database that are likely to be affected by the regulations and 162(m), henceforth generically called million-dollar firms. We define three variables to identify the million-dollar firms. The first variable is equal to one if the CEO's salary is more than one million dollars in the prior year, and is equal to the prior year's salary divided by one million dollars if the prior year's salary is less than one million dollars. Hall and Liebman (2000) use a similar definition to identify firms likely to be affected by 162(m). The second variable is an indicator variable equal to one if the firm's CEO earns a salary that is larger than $900,000 in the prior year, and zero otherwise. With this variable, we intend to capture the firms that are already subject to the 162(m) limitation and the firms that are getting close enough to this benchmark to be concerned about loss of deductibility. Third, we define an indicator variable equal to one for firms with CEOs earning annual cash compensation (including salary and
bonus) of more than one million dollars at least once over the 1992–1997 period. This broad definition includes about half of the firms in our sample suggesting that 162(m) is relevant for many firms. Overall, our results are qualitatively similar using the three definitions.
To examine whether and how these regulations influenced CEO compensation, we test five propositions which we formulate in our later sections. Our main findings are as follows: (1) Real compensation levels have increased dramatically in the period following the enactment of 162(m), in contrast to the stated intentions of Congress. Although rising stock option grants contribute greatly to these increases, all compensation components have increased in real terms and there is no evidence that the growth rates of the various components of compensation have declined after 1993.
(2) Controlling for performance, salary growth has actually increased after 1993, but the growth rate is significantly smaller for firms near or above the million-dollar threshold. (3) For a subset of firms that reduce salaries to a level at or below one million dollars, we find that firms reduce salaries in response to 162(m). At the same time, these salary reductions do not typically lead to lower total compensation for the CEOs of these firms. (4) For all firms and especially those firms affected by 162(m), we find an increase in the sensitivity of bonus payments and total compensation to contemporaneous and lagged stock performance after 1993. This increased sensitivity of compensation to stock returns is not due to the mechanical increase in stock option values when the stock market is rising. (5) The performance sensitive components of compensation, especially stock option grants, have become much larger components of total compensation following 1993. Overall, these results suggest that compensation committees have taken 162(m) into account by modifying the structure of compensation contracts. Additional analysis of the changes in firm-specific CEO wealth and compensation suggests that these changes have also had a significant economic impact beyond annual compensation flows determined by the board of directors.
In the first part of our paper, we emphasize annual pay, defined as the annual flows of cash compensation and option and restricted stock grants. In the context of
the regulations, it is important to analyze this annual flow because: (1) the compensation committee of the board of directors has a direct influence over this annual flow to the CEO; (2) shareholder activists, the press, regulators, and many previous academic studies have focused on the annual pay of CEOs and not on changes in the value of CEO equity holdings; and (3) the regulations were directly targeting this annual flow, especially cash compensation. We recognize, however, as documented by Jensen and Murphy (1990) and Hall and Liebman (1998), that the explicit relation between CEO stock and option holdings and shareholder wealth provides most of the CEO incentives and we focus on this aspect in the second part of the paper. We follow Hall and Liebman by examining three measures of company-related CEO wealth changes and find that the sensitivity of CEO wealth to shareholder wealth is higher than the one reported by Jensen and Murphy for the 1970s and 1980s. For instance, using the Jensen-Murphy statistic or sharing rate, defined as the dollar change in CEO wealth for a $1,000 change in firm value, we document median CEO sharing rates in 1996 from $7 to about $25 per $1,000 shareholder gain or loss, depending on the subgroup. This is in line with the Hall and Liebman finding that pay to performance sensitivity in the 1990s is substantially higher than the sensitivity documented by Jensen and Murphy for earlier periods. More importantly, in a regression framework we find that there is an increase in the wealth to performance sensitivity from 1993 to 1996 for firms approaching the million-dollar benchmark, i.e. firms affected by 162(m).
The paper is organized as follows. In Section 2, we discuss the background for the changes in the SEC Compensation Disclosure Rules and 162(m). In Section 3, we discuss our data collection procedure. Section 4 presents our empirical results on the effects of the regulation on compensation structure, salary levels and growth rates, and compensation to performance sensitivity. Section 5 evaluates the effects of the regulations on the sharing rate and other measures of the sensitivity of CEO wealth on changes in shareholder wealth. We examine the robustness of our results in Section 6 and offer concluding comments in Section .
2. The SEC's new Compensation Disclosure Rules and I.R.C. Section
162(m)
As a result of public perception regarding excessive executive pay in the early 1990s, executive compensation became a hot political issue. As a result, the Securities and Exchange Commission adopted new rules regarding disclosure of executive compensation in 1992.3 These rules required that corporations enhance the disclosure of executive compensation in proxy statements beginning with the 1993 proxy season. Under the new rules, firms are required to: (1) compare their financial performance to an industry benchmark with a table and performance graphs; (2) disclose in a tabular form the annual and long-term compensation for the CEO and the four most highly paid executives; (3) provide estimates of the present value of managerial stock options granted; and (4) provide a report by the compensation committee explicitly identifying quantitative or qualitative performance measures used to evaluate managers.
Researchers have examined managerial reporting discretion relating to portions of these rules and their results suggest that managers and/or directors place great importance on compensation disclosure. For example, Murphy (1996) examines the limited discretion given managers in valuing stock options and finds that managers tend to select methodologies that reduce reported compensation. He concludes that managers bear non-pecuniary costs from high reported levels of compensation. Along the same vein, Byrd et al. (1998) and Lewellen et al. (1996) report that managers choose industry- and peer-company stock return benchmarks that are downward biased. Thus, they argue that managers pay attention to the compensation disclosure as they choose data that tend to overstate the firm's performance.
As part of the Omnibus Budget Reconciliation Act of 1993, Congress enacted Section 162(m) of the Internal Revenue Code (1995), a provision that disallows deductions for nonperformance related compensation over one million dollars for the CEO and the other executives whose compensation must be reported in the proxy statement. The applicable employee remuneration does not include remuneration
payable on a commission basis, compensation that is performance-based, and compensation under a binding written contract in effect on February 13, 1993. For the purpose of a deduction, compensation is classified as performance-based only if (i) the performance goals are determined by a compensation committee comprised solely of two or more outside directors, (ii) the performance goals under which the remuneration is to be paid are disclosed to the shareholders and approved by a majority vote, and (iii) before any payment of such remuneration, the compensation committee certifies that the performance goals and other material terms were satisfied.
3. Data collection
We retrieve compensation data from Standard and Poor's ExecuComp database. This database includes S&P 500, Midcap, and Smallcap index firms. Compensation data are classified into the seven compensation categories identified in the Summary Compensation Tables of the proxy statements including salary, bonus, other annual compensation (including perquisites and amounts for reimbursed for payment of taxes), restricted stock awards, options or stocks appreciation rights (SARs), and long-term incentive plan payouts (LTIP), and “all other compensation.” Total compensation consists of all seven components reported in the proxy statement. The Disclosure Rules require firms to provide dollar values in the Summary Compensation Table for each of the components, except options and SARs, and ExecuComp reports the dollar values provided in the proxy statements. For options and SARs, firms are only required to disclose the number granted to their top executives in the Summary Compensation Table, however additional information relating to the stock option grants is available elsewhere in the proxy statement and ExecuComp separately computes the present value of the options granted to executives using a modified Black-Scholes method. We retrieve accounting data from Compustat and stock returns from the CRSP files. For a smaller subset of our firms, we also collect information on the performance measures explicitly used by compensation committees to evaluate the CEO from the compensation committee reports in the proxy statements. For several of our tests discussed in the sections
below, we compare compensation before 162(m) to compensation after 162(m). For the pre-162(m) period, which we identify with the post-1993 dummy variable in our tests, we only have 1991, 1992, and 1993 compensation data that are truly comparable to the post-162(m) data. This data limitation reduces the power of our tests.
5. Measures of changes in CEO wealth for changes in shareholder
wealth
Thus far, we have focused on the sensitivity of annual compensation flows (i.e., salary, bonus, restricted stock, stock options, long-term incentive plan payouts, and other compensation) to firm performance. We have taken this approach because compensation critics have concentrated on these annual flows and because this is the flow that was apparently targeted by the regulations. Jensen and Murphy (1990), Hall and Liebman (1998), Murphy (1999), among others, show that CEO equity and option ownership in the firm accounts for the bulk of the sensitivity of CEO wealth to firm performance. While our prior results indicate that compensation structure and the compensation to performance sensitivity of million-dollar firms have been affected by the regulations, a crucial question to determine the economic impact of the regulations is whether these effects translate into a higher sensitivity of CEO wealth to shareholder wealth.
6. Ownership or shareholder targeting
We perform various tests to examine whether our results are sensitive to measurement method or sample selection. Thus far we have focused on the subset of million-dollar firms because they are more likely to be affected by the regulations. We now examine whether the million-dollar effect is due to the fact that million-dollar firms are large firms with common governance characteristics that make them more sensitive to shareholder pressures relating to compensation. Core et al. (1999), among others, document that governance structure affects CEO compensation. We explore the characteristics of million-dollar firms using an untabulated logistic model and confirm that million-dollar firms tend to be large firms with low CEO ownership. Firms with low CEO ownership are firms where the CEO has less control or where
the board is more likely to face investor pressures to increase the alignment between CEO and shareholder incentives.
Next, we estimate the models from Table 6 and add interaction variables for (i) firms with low CEO ownership (a dummy equal to one if the CEO's ownership is lower than the median CEO ownership for 1993 and equal to zero otherwise), and (ii) firms that have been targeted by shareholder activists using various targeting definitions with data from Strickland et al. (1996) and Wahal (1996). The sensitivity to stock returns increases both for low ownership firms and for both definitions of million-dollar firms after 1993 compared to firms with high ownership or firms that are not million-dollar firms with high ownership. A similar yet weaker pattern is also observable for the sensitivity to EPS. Overall, these results suggest that sensitivities to performance measures increased after 1993 both for million-dollar and low ownership firms. This result is consistent with the notion that 162(m) affected the pay for performance sensitivity and that boards of firms with low CEO ownership increased the pay for performance sensitivity of compensation contracts to align CEO and shareholder interests. We do not find such a result for interactions with the shareholder activist targeting dummy. Overall, our results show that although the governance variables matter, they do not affect our prior results, namely that million-dollar firms have increased the sensitivity of compensation to performance beyond what other firms have done following the enactment of 162(m). These results are not tabulated for brevity.
7. Concluding comments
The objectives behind the adoption of the new SEC Compensation Disclosure Rules and Section 162(m) were to reduce excessive CEO compensation levels and strengthen the pay for performance relation. We formulate five propositions to test the effect of these compensation regulations using 1991–1997 CEO compensation data. We find that while the regulations have not achieved the objective of reducing CEO compensation growth, they appear to have had a statistically and economically significant impact on the compensation structure of firms most likely to be affected by