Through the looking glass: CEO pay in China's listed companies
Alex Bryson, John Forth, Minghai Zhou 24 June 2014
Publicly traded companies are the engine behind China’s growth, which raises the question of how CEO compensation works under an interventionist state. This column presents an analysis of executive compensation in China and a comparison to the West. Chinese listed firms have incentive structures similar to those of the US; in this case, effective compensation policies seem to transcend political boundaries.
For many in the West China remains a paradox: a single-party Communist state with a vibrant, thriving economy set to challenge the US in the coming decade. Some have questioned the sustainability of the Chinese growth miracle in the absence of fully-fledged democracy and root-and-branch market reforms. But others point to state-sponsored decentralised market reforms over the past three decades as the key to China's success (Xu 2012).
Financial markets Labour markets
China, executive pay, corporate governance, Executive compensation, CEOs
Say on pay in the UK: Modest effect, even after the crisis
Ian Gregory-Smith, Steve Thompson, Peter Wright 24 March 2014
In 2003, the UK adopted a ‘say on pay’ policy, whereby quoted companies’ executive compensation offers have to be put to a shareholder vote. This column presents evidence that this policy has had a relatively modest impact on executive pay. A 10% increase in compensation is associated with an increase in shareholder dissent against the proposal of just 0.2%. However, remuneration committees representing the more highly rewarded CEOs are quite sensitive to dissent, provided it exceeds a critical threshold of about 10%. Shareholders do not appear more anxious about pay since the crisis.
The extensive academic literature on the growth of executive compensation has tended to polarise around one of two positions: the rents-capture view and the optimal contracting approach. These analyses lead to very different positions on the value of a ‘say on pay’ policy:
Frontiers of economic research Labour markets Microeconomic regulation Poverty and income inequality
voting, UK, executive pay, corporate governance, Executive compensation
New thinking on executive compensation: Pay CEOs with debt
Alex Edmans 13 July 2010
Recovering US insurance giant AIG recently announced that 80% of their executives’ bonuses will depend on the price of their firm’s bonds and only 20% will depend on the price of their equity. This column argues that such moves will better align CEO fortunes with those of all investors – both shareholders and bondholders – and help prevent future financial crises.
The recent financial crisis saw CEOs undertake risky actions that cost bondholders billions of dollars. Examples included excessive subprime lending, over-expansion, or diversifying away from their core business into derivatives trading, as happened at Enron and AIG.
Financial markets Labour markets
executive pay, inside debt, CEOs
The rise in American inequality
Ian Dew-Becker, Robert J. Gordon 19 June 2008
Only the top 10% of US earners have seen their incomes grow faster than productivity since 1966. Part of the top-earner income growth is driven by market forces (superstar economics); the only feasible pro-equality policy here is more progressive taxation. For top corporate executives, however, non-market forces (CEO-Board complicity in pay setting) are important, so other policies are warranted. Increased disclosure and improved corporate governance would distribute economic gains more evenly across society and boost firms’ value.
Of all the economic debates with broad political implications, none competes with the puzzling rise in American income inequality since the late 1970s. Both economists and politicians disagree about the forest and the trees – the overall interpretation of rising inequality and the importance of individual causes. People argue about differences between data sources, about the causes of sinking relative incomes in the middle and bottom percentiles, and have especially contentious disagreements about the interpretation of the leap of relative incomes at the top end.
income inequality, superstar economics, executive pay