[中文]服务性行业中首席执行官薪酬与公司绩效
Amarjit Gill*,1, Nahum Biger1and Smita Bhutani2
1工商管理学院,TUI大学,加利福尼亚州,90030,美国
2地理系,Panjab大学,昌迪加尔,印度
摘要:本文研究的是CEO薪酬与公司绩效之间的关系。
数据来源于www.sedar.com[对上市公司和SEDAR备案系统的加拿大证券管理(CSA)投资基金提供访问大部分公共证券文件和信息的官方网站],www.sec.gov/ edgar.shtml和 www.hoovers.com来考察企业业绩与CEO薪酬之间的相关性。结果表明CEO薪酬对净利润率有促进作用。本文基于实证证据为服务产业所有者或经营者提供了有益的见解。
简介
本文以企业绩效与首席执行官(CEO)的薪酬为研究重点。在服务业委托—代理问题已经普遍存在[1]。在本文的研究中对于委托—代理问题,定义为公司经理人与股东之间有利益冲突的可能性。正因为委托—代理问题,在北美国家中CEO薪酬的问题受到了辩论和研究[2]。
现代高管薪酬的研究历史开始在八十年代初,和同时出现并被普遍接受的代理理论[3]。CEO薪酬的组成分为四类:薪水、奖金、长期激励奖励(例如股票期权),和津贴[4]。
经理人(CEO)可能无法在对股东(首席)有利的情况下工作来最大化他们的财富,反而导致了服务行业中的委托代理问题。根据委托代理理论,每个企业都包括所有者(股东)和代理人(经理)。代理理论的假设是经理人出于自身利益的考虑,是规避风险者。根据代理理论,当代理人如首席执行官建立了赔率与股东利益的议程时委托代理问题便会存在[5]。在服务产业首席执行官和股东之间冲突的自然产生可能因为首席执行官的目标可能与股东的目标相不符合。因此,所有者(股东)可以通过控制他或她的奖励激励代理人(CEO)[6]。
首席执行官是公司治理的一部分。企业治理被描述为用于指导和管理业务和公司事务为目的以提高股东价值的结构与过程[7]。公司治理结构的三个因素:i)决策的透明度,ii) 透明的问责制度,因为董事会可以容易地确定是否追究行为责任,iii)组织中在保护利益相关者和投资者利益的意义上的责任。Lee [7]得出了公司治理和股票的价格呈正相关。
董事会是以对公司的信托责任而组建的,包括:i)对于违反信托行为的潜在责任;ii) 诚实的履行义务以及行使技能和勤勉,此为一个普通人预计会采取的合理做法;iii)有义务披露任何的存在潜在利益冲突的个人利益;iv)不与公司竞争的责任[8]。
在一些加拿大的公司(例如,Livent公司和Corel公司),高层管理人员被控"监督大规模的欺诈行为",而且首席执行官被Ontario省证券委员会指控存在内幕交易[9],这不是对股东有利的,因为对股票价格产生了负面影响。这一过程表明董事会成员缺乏问责制。董事会成员对批评缺乏问责制地回应中,在九十年代中期,多伦多股票交易所(TSX)通过公开交易公司的公司治理准则在股票交易所上市[9]。
由于在服务业委托代理问题对股东的财富有负面影响,尽量减少这些问题是很重要的;本文的目的是寻求企业绩效与 CEO 薪酬之间的关系。
虽然Stiglitz[10],Murphy[3]等作者,测试了 CEO 薪酬与公司业绩之间的关系,但是与北美的服务性行业相关的 CEO 薪酬的影响因素的研究并不是很多。因此本文选择服务性公司为研究。这项研究有助于增加以加拿大和美国的数据进行分析CEO薪酬的文献。结果可以推广到服务性行业。
企业绩效与 CEO 薪酬
一些研究处理需要联系薪酬与绩效。Stiglitz[10]发现公司试图找到一份能将利润最大化的合同,并且工人接受合同条款的约束。Diamond和 Verrechia [11]指出因为经理通常作为代理人,而不是公司所有者,他们的决定将取决于企业的激励。
薪酬与绩效的关系已在一些研究测试中进行了实证。Murphy[12] 在对高管薪酬数据进行评估后,评定高管薪酬与绩效之间的关系具有重要意义。Kerr和Kren [13] 发现了对美国公司现金薪酬与业绩的衡量(返回资产和股票收益率)之间有重要的关系。使用现金加上期权作为薪酬措施时,这种关系并不显著。
CEO取得薪酬的形式有现金薪酬、股票薪酬和福利。现金薪酬指工资、奖金及其他薪酬[14]的总和。虽然经理人(CEO)被支付的是固定工资,由于利益冲突他们可能无法对股东有利地工作。那些被支付固定工资的高管缺乏直接主动的激励,以促进公司的业绩,因为它们没有公司的剩余价值所有权[15]。Murphy[3]发现公司业绩与首席执行官现金薪酬(工资)之间的正相关关系。
虽然Murphy[3]已发现首席执行官的薪酬与公司绩效有正向关系,以底薪的形式支付的现金从理论上讲并不能使经理人财富与公司绩效之间相联系。这只是每年支付给高管在的(短期)基本数额。因此,底薪并没有激励高管采取长远的行动来使股东价值最大化。这可能是为什么在过去十年工资在总薪酬金额中比重下降的原因之一。
年度奖金是另一种形式的CEO薪酬。年度奖金被定义为确定在每年的薪酬周期的结束时,仅基于年业绩增长的现金薪酬[16]。首席执行官的年度奖金计划是依年度会计业绩(例如,税前净收入)进行。这种形式背后的逻辑是基于客观措施(销售、收入和回报)付款的业绩计薪制度。它也是一种直接和立即的措施,促使管理层为公司采取行动[17]。
虽然年度奖金激励首席执行官(CEO)以对股东有利而工作,它不可能长期最大化执行性能。Chalmers, Koh和 Stapledon [18] 发现高管奖金与更小的公司业绩之间的正向关系。因此,奖金计划可能不适用于较大的公司使股东财富最大化。
基于股票的经理人激励被认为是一个强大的工具,股东可以激励首席执行官要长期努力提高企业的盈利能力[19]。股票激励计划 (有权购买公司股票的给定价格)是给高管的长期激励计划[16]。这包括将股票授予经理人,经理将成为该公司股东并将采取对股东有利的行动的基本假设。股票期权是给执行官(CEO)作为基于他们的表现以及对过去数十年总薪酬的最大组成部分的奖金。Bebchuk [20] 指出不论是在新经济还是旧经济公司,股权薪酬已大大增加。股权补偿通过提供经理人财富和公司绩效之间的直接联系,降低了代理问题和代理成本。因此,股票期权奖励激励高管采取行动来提高公司的股票价格,换句话说,即最大化股东财富。
公司业绩和股票相关薪酬之间的联系已被发现 [16]。内部持股有可能作为 CEO 薪酬的替代品,因为需要以较少的薪酬激励使股票价值最大化 [21]。Murphy[3]也表明股票期权提供行政奖励与股票价格升值的直接联系。因此,股票期权激励计划会成为最好的薪酬支付方式,因为它有利于公司的长期绩效。
总之,首席执行官(代理)可能无法在有利于股东(委托人)的情况下工作,通过提高公司绩效最大化他们的财富的委托代理问题。这是基于公司会计业绩的CEO薪酬(奖金、股票期权等)所作的决定。因此,据推测在服务性行业,CEO薪酬对企业绩效(NPM、净资产收益率ROA,AT和SG)有促进作用。
方法和数据的测量
为了与前人的研究保持一致,根据Choi [5]和Zhou [4],采取测量首席执行官报酬与企业绩效有关量。本研究应用相关性和非实验性研究设计。测量过程对定量研究至关重要,因为它提供了实证观察和定量关系之间数学表达式的基本连接。
利用五比率(代理变量)衡量公司绩效(自变量):i)净利润率(NPM),ii)股本回报率(ROE),iii)资产收益率(ROA),iv)资产周转率(AT),v) 一年销售增长(SG)。
衡量CEO薪酬(因变量)的是总现金补偿;即年薪+奖金的总和。这项研究排除推迟福利,如养恤金、利润分红计划等。模拟变量用于确定公司是否倾向于提供股票期权而支付较少的现金薪酬。此外,模拟变量作为控制变量,可以找到CEO薪酬与公司绩效的关系。变量"1"表示除现金薪酬以外还提供股票期权的公司,变量"0"表示除现金薪酬以外不提供股票期权的公司。
样品和程序
这项研究选择了2000年1月1日至2000年12月31日之间公布的,大约500份上市公司的财务报告来构建数据库。所选内容取自于"www.sedar.com",www.sec.gov/ edgar.shtml和www.hoovers.com 收集服务行业公司的样本。2000 年1月1日至2000年12月31日公布的上市公司财务报告大约500份,其中仅218财务报告是可用的。
为了克服采样问题,本研究只选择服务性企业 (如餐饮服务、酒店服务、 保险服务、计算机服务、消费者服务、卫生保健服务、休闲服务、电信服务、 运输服务、商业服务、金融服务和零售服务)。对工业企业大多数进行了其他的实证研究。在服务性行业,并没有制造环节,可能有其他因素影响 CEO 薪酬,因为在这个行业对机械和设备的投资是几乎不存在。这个行业是与制造企业不同的,如果租用设施(建筑物),然后投入的资金总额主要是用于周转,并且这主要取决于企业CEO的技能与才智。
数据收集
收集数值(定量)和财务数据以测试假说。收集财务报表和公司对证券以及对加拿大和美国交易委员会提交的数据。
基于这一假设,高管薪酬可以建模如下:
COMPji=b0+b1*NPM+b2*ROE+b3*ROA+b4*AT+b5*SG+b6*DUMMY
b0为回归方程的常数
b1,b2,b3,b4,b5和b6 分别为NPM,ROE,ROA,AT,SG和DUMMY的系数
COMPji为在2000-2000中收到企业认可的CEO薪酬
DUMMY为模型的变量,即1表示除现金薪酬以外还提供股票期权,0表示除现金薪酬以外不提供股票期权。
COMP= CEO现金薪酬(薪水加奖金)的自然对数
净利润率(NPM)=净利息和税后的利润/销售
股本回报率(ROE)=净利息和税后的利润/所有者权益
回报率(ROA)的资产=净利息和税后的利润/资产总额
资产周转率(AT)=销售额/总资产
一年销售增长(SG)=(本年度销售额-去年销售)/上一年度销售额
假设的测试
使用的是社会科学统计软件包SPSS),计算机程序Windows(版本11.5)进行处理数据。我们用多元线性回归来验证我们的假设,即,使用p<.00作为我们研究水平。
CEO 薪酬与公司绩效的关系
理论上在服务性行业中CEO薪酬对企业绩效有作用(NPM,ROE,ROA,AT和SG)。
得出结论CEO薪酬和净利润率之间的存在正相关关系(见表1);在北美的服务性行业中CEO薪酬对净利润率有促进作用。然而由2000年薪酬及 2000年薪酬之间存在负相关关系(见表1);在服务性行业中第二年的薪酬对前一年CEO薪酬没有关系。
净利润率(2000年),股本收益(2000年和2000年),资产回报收益率(2000年和2000年)、资产周转率(2000年和2000年)、销售增长率(2000年),股票期权(2000年和2000年)和CEO薪酬(2000年)之间存在不显著的关系(见表1)。
注意到变化幅度在12.2%左右(R2 = 0.122)的首席执行官度薪酬可以由股票期权(2000年)解释,净利润率(2000年)、资产周转率(2000年),股本收益(2000年),CEO薪酬(2000年),资产周转率(2000年),销量增长率(2000年),资产收益率(2000年),股本回报率(2000年),股票期权(2000年),净利率(2000年)(见表2)。
得到回归方程如下:
CEO薪酬(2000年)=0.007–0.123CEO薪酬(2000)–0.195净利率(2000)+1.237净利率(2000)+0.000股本回报率(2000)+0.003股本回报率(2000)+0.000资产收益率(2000)+0.002资产收益率(2000)–0.000资产周转率(2000)+0.139资产周转率(2000)+0.000销量增长率(2000)–0.116股票期权(2000)+0.122股票期权(2000).
非标准系数 Std. Error 标准系数 t Sig.
常数 0.007 0.008 0.877 0.382
CEO薪酬(2000) -0.123 0.000 -0.143 -2.002 0.000
净利率(2000) -0.195 0.384 -0.002 -0.500 0.613
净利率(2000) 1.237 0.473 0.213 2.618 0.000
股本回报率(2000) 0.000 0.005 0.000 0.700 0.480
股本回报率(2000) 0.003 0.000 0.001 1.175 0.241
资产收益率(2000) 0.000 0.112 0.003 0.417 0.677
资产收益率(2000) 0.002 0.112 0.000 0.822 0.412
资产周转率(2000) -0.000 0.004 -0.000 -0.470 0.639
资产周转率(2000) 0.139 0.116 0.002 1.193 0.234
销量增长率(2000) 0.000 0.000 0.000 0.185 0.853
股票期权(2000) -0.116 0.001 -0.130 -1.620 0.100
股票期权(2000) 0.122 0.003 0.134 1.674 0.006
a因变量:CEO薪酬(2000年)。
b独立变量:CEO薪酬(2000年),净利率(2000年),净利率(2000年), 股本回报率(2000年),股本回报率(2000), 资产回报率(2000年),资产回报率(2000年),资产周转率(2000),资产周转率(2000年),销售增长(2000年),股票期权(2000年)及股票期权(2000年)。股票期权作为单一的虚拟变量来处理,1=公司提供股票期权以及现金薪酬,0 =公司不提供现金薪酬之外的股票期权。
c通过原点的线性回归。
表2.模型总结
模型 R R2 调整后的R2 标准估计的误差
1 0.350 a 0.122 0.002 0.4131927841
a预测指标:(常数),股票期权(2000年),净利率(2000年),资产周转率(2000年),股本回报率(2000年),CEO薪酬(2000年),资产周转率(2000),销售增长(2000年),股本回报率(2000),股本回报率(2000年),股票期权(2000年),净利率(2000年)。
表3. ANOVAb
模型 平方和 df 均方 F Sig.
1 回归 4.589 11 0.417 2.443 0.000
残差 32.951 193 0.171
总计 37.539 200
a预测指标:(常数),股票期权(2000年),净利率(2000年),资产周转率(2000年),股本回报率(2000年),CEO薪酬(2000年),资产周转率(2000),销售增长(2000年),股本回报率(2000),股本回报率(2000年),股票期权(2000年),净利率(2000年)。
b独立变量:CEO薪酬- 2000。
讨论
本项研究的主要目的是检验北美服务类公司支付的首席执行官报酬与公司绩效是否相关。这是通过在"www.sedar.com"、www.sec.gov/ edgar.shtml 和 www.hoovers.com 网站中收集的数据。得出结论在北美的服务类公司中CEO薪酬与净利润率存在相关性。这项研究与Stiglitz[10]得出的公司试图找到能将利润最大化的合同,和Murphy[3]的结果公司业绩与首席执行官现金薪酬(工资)之间存在正向相关关系相一致。本文还有一个有趣的发现,当期CEO薪酬对前一年的薪酬之间毫无关系。
局限性
本项研究仅限于服务产业企业。在本研究中使用的CEO薪酬的定义可以由其他重要的项目来进一步得到扩展,例如价值股票授予、所持股票的资本利得或损失和年度期权和养恤金福利。
因为这项研究是相关性和非试验性的,不能明确地建立 CEO 薪酬与公司绩效的因果联系。因此,只可以对公司绩效与 CEO 薪酬之间的联系提出建议。此外,这项研究的结果只有对类似于本研究方面情况的服务性企业才能得到推广应用。
研究展望
为了进一步扩展超越服务性行业结果的普遍性,主张在其他领域有更多的研究,辅之以侧重与纵面设计的研究,允许跟踪和评估随着时间的推移 CEO薪酬决定因素的演变发展。
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[外文]Corporate Performance and the Chief Executive Officer′s Compensation
in the Service Industry
Amarjit Gill
*,1
, Nahum Biger
1
and Smita Bhutani
2
1
College of Business Administration, TUI University, CA, 90030, USA
2
Geography Department, Panjab University, Chandigarh, India
Abstract: This study examines the relationship between corporate performance and the CEO compensation.
Data were collected from www.sedar.com [the official site that provides access to most public securities documents and
information filed by public companies and investment funds with the Canadian Securities Administrators (CSA) in the
SEDAR filing system], www.sec.gov/edgar.shtml, and www.hoovers.com to examine the relationship between corporate
performance and the CEO compensation. Results suggest that CEO compensation is the function of net profit margin.
This paper offers useful insights for the service industry owner/operators based on empirical evidence.
INTRODUCTION
Corporate performance and the Chief Executive Officer
(CEO) compensation by corporations is the focus of this
paper. Agency problems have been seen prevalent in the
service industry [1]. Agency problem, in the context of this
study, is defined as the possibility of conflicts of interest
between the shareholders and managers of a firm. Because of
the agency problem, the issues of CEO compensation have
been a subject of debate and research in North American
countries [2].
The modern history of executive compensation research
began in the early 1980s and paralleled the emergence and
general acceptance of agency theory [3]. The components of
CEO compensation are classified into four categories: salary,
bonus, long-term incentive rewards (e.g., stock options), and
benefits [4].
An agent (CEO) may not work in the favor of sharehold-
ers (principal) to maximize their wealth, which in turn, leads
to principal-agent problem in the service industry. According
to agency theory, each firm consists of principals (share-
holders) and agents (managers). The assumptions of agency
theory are that agents are motivated by self-interest, are ra-
tional actors, and are risk-averse. According to agency the-
ory, an agency problem exists when an agent such as a CEO
has established an agenda that odds with stockholder inter-
ests [5]. The nature of the conflict between a CEO and share-
holders may arise because the CEO′s objectives may not
coincide with the shareholders′ objectives in the service in-
dustry. Therefore, principal (shareholders) can motivate an
agent (CEO) by controlling his or her incentives [6].
The CEO is a part of corporate governance. Corporate
governance is described as the process and structure used to
direct and manage the business and affairs of the corporation
with the objective of enhancing shareholder value [7].
Corporate governance calls for three factors: i) transparency
in decision making, ii) accountability which follows from
transparency because responsibilities for actions taken or not
taken by the board of directors can be ascertained easily, and
iii) accountability in the sense of safeguarding the interest of
the stakeholders and the investors in the organization. Lee
[7] found a positive correlation between corporate govern-
ance and share price performance.
The board of directors are cast with fiduciary responsi-
bilities towards the company and include: i) potential liabil-
ity for breach of trust; ii) the duty to act honestly and exer-
cise such degree of skill and diligence as would amount to
reasonable care, which an ordinary person would be ex-
pected to take; iii) the duty to disclose any personal interests
of potential conflicts of interest; and iv) the duty not to com-
pete with the company [8].
In some Canadian corporations (e.g., Livent Inc. and
Corel Corporation), senior executives have been accused of
“overseeing a massive fraud” and the CEO has been accused
of insider trading by the Ontario Securities Commission [9]
which is not in the favor of shareholders because it has a
negative impact on share price. This process shows lack of
accountability to by the board of directors. In response to
criticism of a lack of accountability by board of directors, in
the mid 1990s, the Toronto Stock Exchange (TSX) adopted
corporate governance guidelines for publically traded firms
listed on the stock exchange [9].
Because agency problem has negative impact on share-
holders′ wealth in the service firms, it is important to mini-
mize these issues; the purpose of this paper is to find the
relationship between firm performance and the CEO com-
pensation.
Although authors such as Stiglitz′s [10], Murphy′s [3],
etc., have tested relationships between corporate perform-
ance and CEO compensation, there has not been much re-
search conducted on the determinants of CEO compensation
in the North American service industry. Therefore service
firms were selected to complete this research paper. This study contributes to the growing literature on the CEO pay
by analyzing data from Canada and the USA. The results
may be generalized to the service industry.
CORPORATE PERFORMANCE AND THE CEO
COMPENSATION
Several studies address the need to tie compensation to
performance. Stiglitz [10] found that firms attempt to find
that contract which will maximize profit and are subject to
the constraint that some workers accept the contract. Dia-
mond and Verrechia [11] stated that because managers
commonly serve as agents rather than owners of firms, their
decision will depend on corporate incentives.
The relationship between compensation and performance
has been empirically tested in some studies. Murphy [12]
assessed that the relationship between compensation and
performance is significant after evaluating compensation
data for executives. Kerr and Kren [13] found a significant
relationship between cash compensation and measure of per-
formance (return on assets and stock returns) for U.S. firms.
This relationship was not significant when using cash plus
options as compensation measure.
The CEO compensation comes in the form of cash com-
pensation, stock compensation, and fringe benefits. Cash
compensation is defined as the sum of salary, bonus, and
other compensation [14]. Although, executives (CEOs) are
paid fixed salaries, they may not work in the favor of share-
holders (principal) because of the conflict of interest. It has
been found out that executives who are awarded fixed salary
lack a direct incentive to promote firm′s performance be-
cause they do not share in the resulting gains in the firm′s
value [15]. Murphy [3] found a positive relationship between
firm performance and CEO cash compensation (salary).
Although Murphy [3] has found a positive relationship
between firm′s performance and CEO′s salary, cash pay-
ment in the form of base salary theoretically does not make
any links between the corporate performance and executive
wealth. This is just a base amount which is paid to execu-
tives on a yearly (short-term) basis. Thus, base salary does
not have incentive to induce executives to act in the long-run
to optimize shareholders′ value. That may be one of the rea-
sons why salary component became declining weight in the
total compensation over the last decade.
Annual bonus is another form of CEO compensation.
Annual bonus is defined as cash compensation that is deter-
mined at the end of an annual pay cycle and is based on only
one year′s growth of performance information [16]. Annual
bonus plan for the CEO is made on the basis of annual ac-
counting performance (e.g., net income before tax). The
logic behind this form of payment is that it is the pay-for-
performance system based on objective measures (sales, in-
come, and returns). It is also a direct and immediate measure
to induce management incentive to act for the sake of corpo-
rations [17].
Although, annual bonus motivates an executive (CEO) to
work in the favor of shareholders, it may not maximize ex-
ecutive performance in the long-run. Chalmers, Koh, and
Stapledon [18] found a positive relationship between execu-
tive bonus and smaller firm performance only. Therefore,
bonus plan may not work for the larger firms to maximize
shareholders′ wealth.
Stock-based managerial incentives are believed to be a
powerful tool by which shareholders can motivate the CEO
to work hard to improve firms′ profitability in the long-run
[19]. Stock based incentives plan (right to purchase company
stock at a given price) is a long-term incentive plan for ex-
ecutives [16]. This includes stocks granted to managers with
underlying assumptions that managers would become a
shareholder of the corporation and will act in the favor of
stockholders. Stock options are given to executives (CEOs)
as bonus based on their performance and has been the largest
component of total compensation for executives over the last
decade. Bebchuk [20] indicates that equity based compensa-
tion has increased considerably in both the new-economy
and old-economy firms. Equity based compensation reduces
agency problems and agency costs by providing a direct link
between executive wealth and corporate performance. Thus,
stock option reward motivates executives to take action that
increase company′s share price, which in turn, maximizes
shareholders′ wealth.
A strong link between firm performance and stock com-
pensation has been found [16]. Inside stockholdings are
likely to act as substitutes for CEO compensation, since less
incentive compensation is needed to maximize stock value
[21]. Murphy [3] also indicates that stock options provide a
direct link between executive rewards and share-price appre-
ciation, since payout from exercising options increases dollar
for dollar with increases in the stock price. Thus, stock op-
tion executive compensation plan can be considered a best
compensation plan because it works in the favor of the firm′s
long-run performance.
In summary, it is found that firms are subjected to agency
problem in which CEO (agent) may not work in the favor of
shareholders (principal) to maximize their wealth by improv-
ing firm performance. The decisions related to CEO com-
pensation (bonus, stock options, etc.) are made based firm′s
accounting performance. Therefore, it is theorized that CEO
compensation is the function of firm performance (NPM,
ROE, ROA, AT, and SG) in the service industry.
METHODOLOGY AND DATA
Measurement
To remain consistent with previous studies, measures
pertaining to CEO compensation and firm performance were
taken from Choi [5] and Zhou [4]. The study applied co-
relational and non-experimental research designs. The proc-
ess of measurement is central to quantitative research be-
cause it provides the fundamental connection between em-
pirical observation and mathematical expression of quantita-
tive relationships.
Firm performance (Independent variable) was measured
by using five ratios (proxy variables): i) net profit margin
(NPM), ii) return on equity (ROE), iii) return on assets
(ROA), iv) assets turnover (AT), and v) one-year sales
growth (SG).
The CEO compensation (dependent variable) was meas-
ured as total cash compensation; that is, the sum of annual
salary plus bonus. This study excluded deferred compensa-
tion benefits like pensions, profit sharing plans, etc. A 64 The Open Business Journal, 2000, Volume 1 Gill et al.
dummy variable was used to determine whether companies
offering stock options tend to pay less cash compensation. In
addition, dummy variable acts as a control variable to find
the relationship between firm performance and the CEO
compensation. The dummy variable was coded “1” for firms
that provide stock options in addition to cash compensation
and “0” for firms that do not provide stock options in addi-
tion to cash compensation.
Sample and Procedures
The study constructed a database from a selection of ap-
proximately 500 financial-report announced by public com-
panies between January 1, 2000 and December 31, 2000.
The selection was drawn from “www.sedar.com” [the offi-
cial site that provides access to most public securities docu-
ments and information filed by public companies and in-
vestment funds with the Canadian Securities Administrators
(CSA) in the SEDAR filing system], www.sec.gov/edg
ar.shtml, and www.hoovers.com to collect a sample of serv-
ice companies. Out of approximately 500 financial-reports
announced by public companies between January 1, 2000
and December 31, 2000, only 218 financial reports were
usable.
To overcome with the sampling issues, this study se-
lected only service firms (e.g., food services, hotel services,
insurance services, computer services, consumer services,
health care services, leisure services, telecommunication
services, transportation services, business services, financial
services, and retail services). Most other empirical studies
were conducted on industrial firms. In the service industry
which is not involved in manufacturing, there might be other
factors that affect CEO compensation, because in this indus-
try the total investment in machinery and equipment is al-
most non-existent. If this industry leases the facilities (build-
ings) then the total capital that is invested is mainly in work-
ing capital and it might be that the skills and resourcefulness
of the CEO′s of this industry is different from that of manu-
facturing firms. We chose not to sample companies from the
service industry and from manufacturing because the later
were studied before and therefore focused on service indus-
try firms.
Data Collection
Numerical (quantitative) and financial data were col-
lected to test hypothesis. Financial statements and proxies
submitted by companies to Securities and Exchange Board
of Canada and USA were used to collect data.
Based on the hypothesis, executive compensation can be
modeled as follow:
COMP
ji
= b
0
+ b
1
*NPM + b
2
*ROE + b
3
*ROA + b
4
*AT +
b
5
*SG + b
6
*DUMMY
where b
0
= constant of the regression equation
b
1,
b
2,
b
3,
b
4,
b
5,
and b
6
= coefficient of NPM, ROE, ROA,
AT, SG, and DUMMY
COMPji = CEO compensation for firm j received in 2000-
2000
DUMMY = Dummy variable with 1 = firms provided stock
options in addition to cash compensation and 0 = firms did
not provide stock options in addition to cash compensation
COMP = The natural logarithm of CEO cash compensation
(salary plus bonus)
Net profit margin (NPM) = Net profit after interest and tax /
sales
Return on equity (ROE) =Net profit after interest and tax /
owners′ equity
Return on assets (ROA) = Net profit after interest and tax /
total assets
Assets turnover (AT) = Sales / total assets
One-year sales growth (SG) = Current year sales – previous
year sales / previous year sales
Testing of Hypotheses
Data were processed with the Statistical Package for the
Social Sciences (SPSS) computer program for Windows
(version 11.5). We used multiple linear regression to accept
or reject our null hypotheses and used p < .00 as our level of
significance.
Relationship Between Firm Performance and CEO Com-
pensation
It was theorized that CEO compensation is the function
of firm performance (NPM, ROE, ROA, AT and SG) in the
service industry.
A positive relationship between CEO compensation and
net profit margin (see Table 1) was found; that is, CEO com-
pensation is the function of the net profit margin in the North
American service industry. However a negative relationship
between year 2000 compensation and year 2000 compensa-
tion (see Table 1) was found; that is, upcoming year′s com-
pensation is not the function of previous years′ CEO com-
pensation in the service industry.
Non-significant relationships were found between net
profit margin (2000), return on equity (2000 and 2000), re-
turn on assets (2000 and 2000), asset turnover (2000 and
2000), sales growth (2000), stock options (2000 and 2000),
and CEO compensation (2000) (see Table 1).
Note that around 12.2% (R
2
= 0.122) of the variance in
the degree of CEO compensation can be explained by the
degree of Stock Options (2000), Net Profit Margin (2000),
Asset Turnover (2000), Return on Equity (2000), CEO
Compensation (2000), Asset Turnover (2000), Sales Growth
(2000), Return on Equity (2000), Return on Assets (2000),
Stock Options (2000), Net Profit Margin (2000) (see Table
2).
The regression equation is as follows:
CEO Compensation (2000) = 0.007 – 0.123 CEO Com-
pensation (2000) – 0.195 Net Profit Margin (2000) + 1.237
Net profit Margin (2000) + 0.000 Return on Equity (2000) +
0.003 Return on Equity (2000) + 0.000 Return on Assets
(2000) + 0.002 Return on Assets (2000) – 0.000 Asset Turn-
over (2000) + 0.139 Asset Turnover (2000) + 0.000 Sales
Growth (2000) – 0.116 Stock Options (2000) + 0.122 Stock
Options (2000).
As shown in Table 3, ANOVA′s test is also non-
significant at 0.000.
DISCUSSION
The main purpose of this study was to examine whether
the remuneration paid to CEOs of North American service
firms is related to corporate performance. This was done by
collecting data from “www.sedar.com” [the official site that
provides access to most public securities documents and in-
formation filed by public companies and investment funds
with the Canadian Securities Administrators (CSA) in the
SEDAR filing system], www.sec.gov/edgar.shtml, and
www.hoovers.com. It was found that CEO compensation is
the function of net profit margin in the North American serv-
ice firms. The study supports Stiglitz′s [10] findings that
firms attempt to find that contract which will maximize
profit and Murphy′s [3] findings in which he indicates a
positive relationship between firm performance and CEO
cash compensation (salary). An Interesting finding of this
paper is that current CEO compensation has nothing to do
with the previous year′s compensation.
Limitations
This study is limited to the service industry firms. The
definition of CEO compensation used in this study can be
extended by including other important items such as value of
stocks granted, capital gains/losses on holding of stocks and
options during the year, and pension benefits.
Because this study was co-relational and non-
experimental, a causal link between firm performance and
the CEO compensation cannot be definitively established.
Therefore, a link between firm performance and the CEO
compensation can only be suggested. Additionally, the find-
66 The Open Business Journal, 2000, Volume 1 Gill et al.
ings of this study could only be generalized to service firms
similar to those that participated in this research.
Future Research
To further enhance the generalization of the findings be-
yond the service industry, additional research in other fields
is advocated, complemented by studies focusing on a longi-
tudinal design, allowing for tracking and assessing the evolu-
tion of the determinants of CEO compensation over time.
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