30 8 APPENDICES Appendix 1 Literature review overview

 

30

8

APPENDICES

Appendix 1

Literature review overview

Authors

(Year) Sample Variables Research and findings

Newman & Mozes (1999)

161 U.S. firms

Independent variable – Firm performance measured by stock returns, EPS and sales.

Dependent variable – CEO compensation is measured by bonus and total compensation payouts.

Moderator variable – Corporate governance quality of compensation committees is expected to increase due to tax legislation enacted in 1993.

Newman and Mozes (1999) study whether remuneration committee composition impacts CEO compensation practices. They show that, when stock returns are negative, the relationship between CEO compensation and stock returns is significantly lower for companies whose remuneration committee has at least one insider than for companies whose remuneration committee has no insiders. Nevertheless, no similar proof is found for companies with positive stock returns. Therefore, the authors provide only partial evidence on the effect of compensation committee composition on the relation between CEO compensation and stock returns.

Perry & Zenner (2001) 200 U.S. firms

Independent variable – Firm performance measured by stock returns and accounting earnings

Dependent variable – CEO compensation is measured by three components. These include 1) Salary; (2) Bonus; (3) Other annual compensation. Moderator variable – The proportion of independent directors on the committee.

Perry and Zenner (2001) explore whether CEO remuneration practices are influenced by tax legislation passed in 1993 (the Internal Revenue Code Section 162(m)), which may enhance the corporate governance quality of remuneration committees. The authors state a stronger relation between remuneration and stock returns after 1993, and state that this relationship is more pronounced for companies that are more likely to be influenced by the Internal Revenue Code Section 162(m). Though, there is no clear impact of the legislation on the relationship between remuneration and accounting earnings. Overall, the authors find sufficient evidence to state that high corporate governance quality increases the association between CEO remuneration and firm performance.

Vafeas

(2003a) 271 U.S. firms

Independent variable – Firm performance measured by accounting return on assets and stock returns.

Dependent variable – CEO compensation is measured by three components. These include (1) CEO cash pay (salary and cash bonus compensation); (2) CEO long-term incentive pay; (3) total CEO pay.

Moderator variable – The proportion of independent directors on the committee.

Bizjak (2003) U.S. firms

interest, tax, depreciation and amortization divided by the book value of total assets for the prior year (accounting measure of performance); (2) Annual return on common stock for the prior year (market measure of performance). Dependent variable – CEO compensation is measured by two components. These include (1) Total compensation (salary and bonus) (2) The annual value of new options grants and the value of the full option portfolio.

Moderator variable – The proportion of independent directors on the committee.

independence affects compensation practices. No proof is found that the proportion of independent directors on the committee is significantly associated to the sensitivity of the value of new option grants or the full option portfolio to firm performance, suggesting that higher remuneration committee independence would not result in a larger magnitude of pay-performance sensitivity.

Sun & Cahan (2009) 812 U.S. firms

Independent variable – Accounting earnings.

Dependent variable – Total cash compensation (the sum of bonus and salary) Moderator variable – Quality of the remuneration committee measured by (1) The proportion of CEO appointed directors on the committee (2) The proportion of directors on the committee with 20 or more years of board service time for the current firm; (3) The proportion of CEOs of other firms on the committee (4) The percentage of shares held by directors on the committee (5) The proportion of directors with three or more additional board seats on the compensation committee; (6) The number of directors on the compensation committee.

 

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Appendix 2

Correlation matrix - ROE

LN ( C EO p ay ) ROE Prop. ind. m em be rs Si ze c om m it te e # of m ee ti n gs Pr op. f em al e LN ( to ta l a ss et s) Le ve ra ge Gr owt h op p or tu n it y Pr op. ind. * R O E Si ze * R O E # m ee ti n gs * R O E Pr op. f em al e * R O E LN (CEO pay) 1.000 ROE 0.073 1.000 Prop. independent -0.057 -0.009 1.000 Size of committee 0.319** _{-0.005 -0.050 1.000} # of meetings 0.218** _{0.056 -0.051 0.210}** _1.000 Prop. female 0.125** -0.006 0.042 0.149** -0.006 1.000 LN (total assets) 0.639** _{-0.004 -0.031 0.382}** _0.283** _0.162** _1.000 Leverage 0.163** 0.060 -0.019 0.203** 0.194** 0.090* 0.192** 1.000 Growth opportunity 0.040 0.178** -0.101** -0.002 -0.041 0.029 -0.263** -0.199** 1.000

Prop. Ind * ROE 0.073 1.000** -0.003 -0.007 0.056 -0.007 -0.001 0.055 0.177** _1.000

Size * ROE 0.075* 0.970** -0.010 0.055 0.077* 0.006 0.014 0.045 0.180** 0.970** 1.000

# meetings * ROE 0.083* _0.942** _{-0.015 0.034 0.170}** _{-0.014 0.020 0.111}** _0.166** _0.942** _0.934** _1.000

Prop. female * ROE 0.028 0.532** _{0.000 0.053 0.016 0.230}** _{0.005 0.056 0.149}** _0.532** _0.612** _0.567** _1.000

**_{. Correlation is significant at the 0.01 level (2-tailed).}

*_{. Correlation is significant at the 0.05 level (2-tailed).}

Correlation matrix - ROA

LN ( C EO p ay ) ROA Prop. ind. m em be rs Si ze c om m it te e # of m ee ti n gs Pr op. f em al e LN ( to ta l a ss et s) Le ve ra ge Gr owt h op p or tu n it y Pr op. ind. * R O A Si ze * R O A # m ee ti n gs * R O A Pr op. f em al e * R O A LN (CEO pay) 1.000 ROA 0.118** _1.000 Prop. independent -0.057 -0.074* _1.000 Size of committee 0.319** _{0.036 -0.050 1.000} # of meetings 0.218** _-0.080* _{-0.051 0.210}** _1.000 Prop. female 0.125** -0.017 0.042 0.149** -0.006 1.000 LN (total assets) 0.639** _-0.098* _{-0.031 0.382}** _0.283** _0.162** _1.000 Leverage 0.163** -0.212** -0.019 0.203** 0.194** 0.090* 0.192** 1.000 Growth opportunity 0.040 0.522** -0.101** -0.002 -0.041 0.029 -0.263** -0.199** 1.000

Prop. Ind * ROA 0.115** _0.999** _{-0.043 -0.037 -0.082}* _{-0.016 -0.099}* _-0.211** _0.519** _1.000

Size * ROA 0.191** 0.942** -0.072* 0.273** -0.006 0.028 -0.006 -0.132** 0.512** 0.941** 1.000

# meetings * ROA 0.194** _0.873** _-0.097** _0.143** _0.250** _{0.002 0.053 -0.085}* _0.422** _0.870** _0.866** _1.000

Prop. female * ROA 0.158** _0.413** _{-0.021 0.150}** _{-0.006 0.623}** _{0.064 0.028 0.262}** _0.413** _0.479** _0.404** _1.000

**_{. Correlation is significant at the 0.01 level (2-tailed).}

*_{. Correlation is significant at the 0.05 level (2-tailed).}

 

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Appendix 4

Correlation matrix - Tobin’s Q

LN ( C EO p ay ) To b in ’s Q Pr op. ind. m em be rs Si ze c om m it te e # of m ee ti n gs Pr op. f em al e LN ( to ta l as se ts ) Le ve ra ge Gr owt h op p or tu n it y Pr op. ind. * T obi n’ s Q Si ze * T obi n’ s Q # m ee ti n gs * T ob in ’s Q Pr op. f em al e * T obi n’ s Q LN (CEO pay) 1.000 Tobin’s Q 0.095* _1.000 Prop. independent -0.057 -0.097* _1.000 Size of committee 0.319** _{0.032 -0.050 1.000} # of meetings 0.218** _{0.039 -0.051 0.210}** _1.000 Prop. female 0.125** 0.091* 0.042 0.149** -0.006 1.000 LN (total assets) 0.639** _{-0.057 -0.031 0.382}** _0.283** _0.162** _1.000 Leverage 0.163** 0.151** -0.019 0.203** 0.194** 0.090* 0.192** 1.000 Growth opportunity 0.040 0.320** -0.101** -0.002 -0.041 0.029 -0.263** -0.199** 1.000

Prop. Ind * Tobin Q 0.091* _0.998** _{-0.046 0.033 0.035 0.093}* _{-0.061 0.153}** _0.316** _1.000

Size * Tobin Q 0.209** 0.903** -0.090* 0.396** 0.113** 0.140** 0.092* 0.205** 0.277** 0.902** 1.000

# meetings * TobinQ 0.209** ₀₈₁₂** _-0.144** _0.148** _0.534** _0.076* _0.101** _0.215** _0.236** _0.805** _0.792** _1.000 Prop.female *

TobinQ

0.124** _0.416** _{0.000 0.137}** _{0.011 0.817}** _0.123** _0.109** _0.108** _0.419** _0.452** _0.347** _1.000

**_{. Correlation is significant at the 0.01 level (2-tailed).}

Correlation matrix - Stock market returns

LN (C E O p ay ) Ma rk et R et u rn s Pr op. ind. m em be rs Si ze c om m it te e # of m ee ti n gs Pr op. f em al e LN ( to ta l a ss et s) Le ve ra ge Gr owt h op p or tu n it y Pr op. ind. * M ar ke tR Si ze * M ar ke tR # m ee ti n gs * M ar k et R Pr op. f em al e * M ar ke tR LN (CEO pay) 1.000 Market Returns 0.105** _1.000 Prop. independent -0.057 -0.078* _1.000 Size of committee 0.319** _{0.004 -0.050 1.000} # of meetings 0.218** _{0.034 -0.051 0.210}** _1.000 Prop. female 0.125** 0.001 0.042 0.149** -0.006 1.000 LN (total assets) 0.639** _0.087* _{-0.031 0.382}** _0.283** _0.162** _1.000 Leverage 0.163** -0.014 -0.019 0.203** 0.194** 0.090* 0.192** 1.000 Growth opportunity 0.040 0.328** -0.101** -0.002 -0.041 0.029 -0.263** -0.199** 1.000

Prop. Ind *MarketR 0.102** _0.999** _{-0.038 0.002 0.031 0.004 -0.084}* _{-0.013 0.323}** _1.000

Size * MarketR 0.199** 0.934** -0.090* 0.310** 0.097** 0.054 0.215** 0.046 0.311** 0.930** 1.000

Meetings *MarketR 0.194** ₀₈₃₃** _-0.105** _0.101** _0.476** _{-0.007 0.221}** _0.088* _0.239** _0.828** _0.819** _1.000 Prop.female *

MarketR

0.142** _0.418** _{0.028 0.127}** _{-0.004 0.740}** _0.134** _{0.041 0.181}** _0.425** _0.446** _0.299** _1.000

**_{. Correlation is significant at the 0.01 level (2-tailed).}