Table Of ContentContributions to Management Science
Mehtap Aldogan Eklund
Fairness of CEO
Compensation
A Multi-Faceted and Multi-Cultural
Framework to Structure Executive Pay
Contributions to Management Science
Moreinformationaboutthisseriesathttp://www.springer.com/series/1505
Mehtap Aldogan Eklund
Fairness of CEO
Compensation
A Multi-Faceted and Multi-Cultural
Framework to Structure Executive Pay
MehtapAldoganEklund
DepartmentofAccountancy
UniversityofWisconsin-LaCrosse
LaCrosse,WI,USA
ISSN1431-1941 ISSN2197-716X (electronic)
ContributionstoManagementScience
ISBN978-3-030-33553-3 ISBN978-3-030-33554-0 (eBook)
https://doi.org/10.1007/978-3-030-33554-0
©SpringerNatureSwitzerlandAG2019
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For my Husband, Family,
Minnie, Maya, and Shandi
Preface
Executive compensation, its level, structure, and fairness are a long-lasting, never-
ending,andoftenheatedpublicdebate.Thisbookprovidesthereaderwithaholistic
viewwhichconvergesallofthevantagepoints,and relevant theoriesonexecutive
compensation and its fairness, as well as the insights of practitioners on fair and
optimalcompensationstructureandpaylevel.
To alleviate public distress, and social and economic repercussions, and, at the
same time, to retain top calibre executives, the author suggests a multifaceted and
multiculturalframework,whichiscalledthe“fairCEOcompensationframework”.It
is scientifically developed and structured, based upon stakeholder and behavioural
agency theories, andprovidespractitioners with guidancetoreach thebest, fairest,
mostoptimal,desirable,proper,appropriate,andjustexecutivecompensationstruc-
turewithoutcappingbonusesorvariablepaybyrulesandregulations.
Inadditiontotheholisticframework,implementationguidelines,achecklistfor
the fairness of CEO compensation, and a survey template investigating the
employees’perceptionofthefairnessofCEOcompensation,thebookpresentsthe
opinionsofexpertsonfairandoptimalCEOcompensationlevelandstructure.The
expertswhocontributedtothepracticalinsightsectionofthebookarethegurusof
corporategovernanceandexecutivecompensation.Theirpracticalexperiencesand
insightsarebotheye-openingandinformativeforbothbusinessesandacademics.
Practitioners apart, it is also a valuable reference book for academics and
researchers because it stimulates critical thinking, links the theory to practice, and
guidesacademicsonthekeyconceptsofthefairnessnormsofexecutivepay.
Mostofthebooksonexecutivecompensationareoftentootheoretical,toolong,
andtooconfusing.Incontrast,thisconcise,relevant,innovative,andrigorousbook
aimstoanswerthequestionsofbothresearchersandpractitionersonfairandoptimal
executive compensation by its simple, holistic, scientifically driven, and easily
implementedframework.
Finally,theoctagonalfairCEOcompensationframeworkincludeseightcompo-
nents.Threeofthemhavebeenempiricallyanalysedintheauthor’sdissertation.In
other words, the portions of this book regarding “pay-for-financial performance”,
“pay-according to-risk”, and “pay-not-more than-peers” have been adopted and
vii
viii Preface
updated from the author’s dissertation submitted to the University of St. Gallen
(HSG),entitled“CEOCompensationofListedCompaniesinSwitzerland:Empirical
StudiesonFirmFinancialPerformances,Risk,andPeerGroupComparisons”,inthe
year2015.
2019 MehtapAldoganEklund
Acknowledgements
Iwouldliketotakeamomenttothankthevaluableandwonderfulpeoplewhohave
supportedmethroughoutthislongandchallengingjourney.
IowemydeepestgratitudetoMartinHilb,whoismyformersupervisorandmy
rolemodel,forprovidinghisconstantfeedback,support,andintellectualguidance.
Heisanauthorityonexecutivecompensationandcorporategovernance,andheisan
exemplary leader and an academic who has “a warm heart, working hands, and a
cool head”. In addition, I would like to thank again to my previous co-supervisor,
Pascal Gantenbein, and Anna Schlegel at the Doctoral Office at HSG for their
feedbackandresponsestomyinquiriesduringthePhD.
My special thanks go to the participants of the questionnaire, Martin Hilb,
Hermann J. Stern, Matthias Mölleney, Simon Patterson, Anna Sender, Alexandra
Arnold, Alexander F. Wagner, Remo Schmid, and Olof Svensson. Without their
valuableexpertiseandinput,thechapteronpracticalinsightscouldneverhavebeen
completed.
I am indebted to Springer, especially to Prashanth Mahagaonkar and Alamelu
Damodharan,fortheirtrust,help,andsupport.
IamalsoverygratefultoFredrikHansenatRefinitivforhissupportandguidance
ontheEikonandDatastreamDatabases,andIwishtoexpressmythankstoMehmet
Kocakulah,myfamily,myhusband,andBirgitLeickfortheirconstantencourage-
ment to keep me focused on the research. Last but not least, my thanks go to the
BusinessandGovernanceResearchGroup(Bus-GovatOstfoldUniversityCollege)
for their financial support for language editing and to Chris Engert in Florence for
editingandproofreadingthewholevolume.
ix
Contents
1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Objectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.4 Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.5 DefinitionoftheTerms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.6 TheFairCEOCompensationFramework. . . . . . . . . . . . . . . . . 10
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2 TheConceptofFairCEOCompensation. . . . . . . . . . . . . . . . . . . . 17
2.1 WhatIsFairnessandFairPay?. . . . . . . . . . . . . . . . . . . . . . . . 17
2.2 TheoreticalFoundationsforExecutiveCompensation
andFairPay. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.2.1 GovernanceTheories. . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.2.2 SociologicalandEthicalTheories. . . . . . . . . . . . . . . . . 25
2.2.3 SchoolsofThought. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.3 HowIsCompensationFairnessApplied?. . . . . . . . . . . . . . . . . 28
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3 CompensationforFinancialPerformance. . . . . . . . . . . . . . . . . . . . 39
3.1 CEOCompensationinListedFirms. . . . . . . . . . . . . . . . . . . . . 46
3.2 TrendintheHighestCompensationinListedCompanies. . . . .. 49
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
4 CompensationforNon-financialPerformance(ESGScores). . . . . . 67
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
5 CompensationAccordingtoRiskoftheFirm. . . . . . . . . . . . . . . . . 75
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
6 CompensationNotMorethanPeers. . . . . . . . . . . . . . . . . . . . . . . . 81
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
xi
