首席执行官股票期权薪酬和股份制的激励结构：对公司风险的干扰效果

附录原文:Incentive Structure of CEO Stock Option Pay and Stock Ownership: The Moderating Effects of Firm Riskby Wm. Gerard Sanders, Marriott School of Business, Brigham Young UniversityAbstractThis paper investigates the incentive effects of CEO stock ownership compared to those of stock option pay. It is argued that although both reward executives for increasing shareholder wealth, options fail to penalize executives when stock prices drop after the date of option grant. Moreover, due to these risk asymmetries, effects of these two forms of financial incentives likely diverge at high levels of firm risk. These hypotheses are tested with a sample of 250 large firms studied during the 1990s. Results indicate that at high levels firm risk stock ownership had positive effects on firm performance but stock option pay had negative effects.1. IntroductionAt least since the writings of Berle and Means (1932), scholars have expressed concern over the separation of ownership and control and how it can lead to conflicts of interests between executives and shareholders (Jensen &Meckling, 1976). The executive compensation contract can potentially solve such conflicts. Indeed, few topics in the history of business research have garnered the attention from as many academic disciplines as has the topic of executive compensation (Murphy, 1999). Scholars from disciplines as various as accounting, finance, economics, strategy, management, and law have produced voluminous research on the topic. The prescription that compensation schemes such as stock options can substitute for executive stock ownership is widespread in much of that literature. As summarized by Jensen and Murphy: “compensation and stock ownership remain the most effective tools for aligning executive and sha reholder interests” and that “until directors adopt compensation systems that truly link pay and performance large companies and theirshareholders will continue to suffer from poor performance” (1990:149). Murphy (1999) further noted that “pay-performance sensitivities are driven primarily by stock options and stock ownership, and not through other forms of compensation” (p. 34).Despite considerable effort to disentangle the complex web of causes and consequences of executive compensation, there appears to be much we still do not understand (Baker, Jensen, & Murphy, 1988; Murphy, 1999; Finkelstein & Hambrick, 1996). Advances in our understanding are likely to be at the intersections of several academic disciplines where cross-fertilization of ideas can expand our understanding (Baker, Jensen, & Murphy, 1988). One important issue in executive compensation that is particularly well suited for interdisciplinary research is whether stock option pay is a substitute for executive stock ownership. Because options tie executive wealth to subsequent firm performance, many have assumed that options align executive incentives in ways similar to actual stock ownership (Jensen &Murphy, 1990; Mehran, 1995; Murphy, 1999). This paper examines the relative effects of these two incentive alignment mechanisms; specifically the effect of firm risk in moderating the incentive effects of options and stock ownership is studied. Learning from agency theory is integrated with current research in behavioral decision theory to develop hypotheses regarding the effects of option pay and stock ownership on firm performance. Moreover, while research examining risk and compensation has traditionally been cross-sectional in nature (Beatty&Zajac, 1994; Eaton&Rosen, 1983; Mehran, 1995; Zajac &Westphal, 1994), this study extends that research by examining the effect of ownership and stock option pay on firm performance in subsequent periods.2. Options as a Substitute for Stock OwnershipHaving executives own significant amounts of firm stock is perhaps the most direct way to link the financial wealth of executives to that of shareholders (Jensen & Murphy, 1990); however, many top executives own rather modest amounts of their firm’s equity. Therefore, many scholars, practitioners, and executives alike have argued that stock option pay serves as a reasonable substitute for stock ownership (Jensen & Murphy, 1990; Lublin, 1998; Towers Perrin, 1997). Option pay can be used to establish an ex ante contract that guarantees that future levels of compensation will be positively correlated with firm performance. Given the intuitive appeal of an ex ante pay-for-performance contract, it islittle wonder that option pay has skyrocketed in recent years (Jarrell, 1993; Lublin, 1998; Yermack, 1995). Nevertheless, there is little empirical evidence that option pay has the same incentive effects as stock ownership. An important question that needs to be addressed is whether option pay induces executives to act in the sameway that stock ownership does and whether both produce similar long-term effects on firm performance. How risk is transferred to executives may be critical in determining executives’ response to ownership and option pay (Beatty & Zajac, 1994; Holmstrom, 1987; Marcus, 1981). Normative agency theory suggests that if too much risk is transferred to executives,incentives could have the opposite effect of that desired; they may make executives more risk averse rather than motivate them to take additional risk. Behavioral decision theory, on the other hand, suggests that the important issue may be risk symmetry; how agents respond to incentives may be dependent on the mix of potential downside risk and upside reward imposed by said incentives (Shapira, 1995; Wiseman & Gomez-Mejia, 1998). Moreover, given the importance of risk in decision making (Shapira, 1995), the level of firm risk is likely to moderate the effects of incentives given to executives, and an inappropriate combination of incentives and firm risk could lead to undesirable outcomes (Beatty & Zajac,1994).There is some empirical evidence to support the prescription that ownership and option pay can align executives’ incentives with the interests of shareholders. Most common are studies of executive stock ownership, which generally find positive associations between executive stock ownership and firm performance (Jensen&Murphy, 1990; Mehran,1995; McConnell&Servaes, 1990; Morck, Shleifer,&Vishny, 1988). Other studies examine specific events to determine the effects of incentives. For example, for firmsmaking acquisitions, stock ownership and stock option pay appear to be positively associated with abnormal returns (Agrawal & Mandelker, 1987). However, in many of these studies, executive stock ownership and stock option pay are aggregated into a single measure of stock-based incentives. Thus it is difficult to infer with confidence that the two forms of incentives have similar effects. Notwithstanding this empirical evidence, it has yet to be firmly established that incentives in one period lead to higher levels of performance in later periods. Yet, this is the causal link that is clearly established in the prescriptive incentive alignment hypothesis. Murphy (1999) explains that one reason research has yet to document such a link is the theoretical orientationof many scholars; faith in the efficient market hypothesis leads many scholars to examine the issue using event study methodology and other contemporaneous cross sectional methods. However, if we relax the efficiency assumption, the question still remains: will requiring higher levels of executive stock ownership or using more stock option pay result in higher levels of subsequent firm performance? The logic of the incentive alignment literature certainly implies that it will. Stated formally, that logic is expressed in the following two hypotheses: H1a: CEO stock ownership will be positively associated with subsequent firm performance.H1b: CEO stock option pay will be positively associated with subsequent firm performance.3. Asymmetric Risk ProfileAlthough options and ownership have congruent effects on executive wealth when the firm’s share price increases, they diverge when the share price declines. Options reward executives for increasing shareholder wealth, but they protect executives from declines in shareholder wealth (Tufano, 1996). When a firm’s share price falls below the option price, there is no direct reduction in executive wealth. In effect, options limit executive losses to zero, even when shareholders lose substantially. Such is not the case with stock ownership; stock price declines result in immediate and real reductions in executive wealth for those who own stock. Moreover, options tend to be layered on-top-of base levels of executive pay as opposed to being used to restructure p ay to make it “riskier” (Yermack, 1995). Thus option pay does not penalize executives for poor firm performance in the same way that stock ownership does. Therefore, ownership and option pay may not always have congruent motivational properties. Options motivate more risk taking than stock ownership (Murphy, 1999). For example, Tufano (1996) found that among gold mining firms, executives who owned stock were more likely to hedge gold prices than were those paid in stock options. He argued that while the value of an ownership position can be maximized through hedging, refusing to hedge maximizes option value. In addition, Lambert, Lanen, and Larcker (1989) found that after the implementation of stock option plans, executives reduced dividends in their firms. They argued that such action may have been motivated by a desire to use such proceeds in investments that could potentially increase firm variance, and thus the value of their options.To the extent that options motivate executives to increase total risk, “managers who hold implicit options might be tempted to undertake high-variance projects which equity holders would reject on the basis of net present value and systematic risk criteria” (Marcus, 1981:376).Behavioral decision theory (Kahneman&Tversky, 1979; Shapira, 1995; Sitkin&Pablo,1992) complements the speculation of normative principal-agent scholars(Holmstrom,1987; Marcus, 1981) who suggest that the different risk characteristics inherent in ownership and option pay will have significant effects on decision making. The literature on risky decision-making suggests that when decision-makers have no personal downside risk they tend to focus on upside opportunities and ignore shareholders’ downside risk (Kahneman&Tversky, 1979; Shapira, 1995). Consequently, decision-makers lacking personal downside risk tend to make riskier decisions than those who are exposed to such risk do. Moreover, when decision-makers are compensated with incentives that offer upside rewards but impose no downside risk they are more likely to take large risks. When executives have financial incentives with asymmetric upside potential (i.e., lacking downside)they focus their attention myopically on potential rewards and are thus less likely to exhibit rational calculation of downside probabilities (Kahneman & Tversky, 1979; Shapira,1995). As a consequence, their decision making may be biased. Alternatively, when executives have financial incentives with both upside potential and downside risk, it engenders consideration of both in the decision-maker’s calculus of projected returns.Given the differences between executive stock ownership and option pay, firm risk is a particularly important contextual factor that can affect how well these incentives perform their intended function. When firm risk rises, the range of possible outcomes from investment choices increases. Thus firm risk will increase the chance that any executive will inadvertently select a “false positive” project (i.e., projects believed a priori to have a positive net present value but which prove to be negative ex post). However, executives who are biased toward the taking of more risk than an objective calculus would suggest is warranted are much more likely to choose an investment option that proves to be a false positive. Incentives that provide only upside and no downside risk result in decision-makers who are “risk seekers.” Under normal situations, risk seeking may be in shareholders’ best interest. However, in situations where the firm’s investment opportunity set instillssignificant risk and ex ante decision calculus is by definition more uncertain, risk seeking propensity can be counter productive because it increases the odds that poor investment projects will be selected (Shapira, 1995). Conversely, incentives that provide both upside incentive and downside exposure provide motivation to not only take risks, but to exercise caution about downside probabilities. Therefore, executives who have incentives with symmetric risk structure are more likely to use unbiased decision-making criteria. In summary, it is argued that stock ownership should be a better incentive mechanism when firm risk is high. In high-risk contexts, decision-makers need the balance provided by upside opportunity and downside risk inherent in stock ownership. Stock option pay, however, should be better suited for firmswith low to average levels of risk. In those situations, options likely provide the incentive to take prudent risks and help managers overcome natural risk aversion tendencies. However, at higher levels of firm risk, the positive effects of stock option pay should diminish as it motivates executives to take excessive risks. This logic leads to the following hypotheses: H2a: Firm risk will positively moderate the relationship between executive stock ownership and subsequent firm performance.H2b: Firm risk will negatively moderate the relationship between executive stock option pay and subsequent firm performance.4. Research Method4.1 DataThe sample for this study includes 250 firms randomly selected from the 1994 S&P 500.Data for three years of firm performance (1994-1996) were collected. Missing data for 10 observations resulted in a total of 740 firm years of data. Compensation, tenure, and ownershipwere collected from proxy statements. Data regarding board structure were collectedfrom Dun & Bradstreet’s Million Dollar Directory. Data from Compustat were used for firm financial performance, risk, and size measures. Because subsequent firm performance is being predicted, financial incentives were measured two years prior to the performance period being measured. This lag is discussed in more detail below.4.2 MeasuresSubsequent firm performance was measured as total shareholder returns, defined as the sum of stock price gains plus dividends distributed during the year. As indicated earlier, most previous studies assessing the impact of executive compensation and stock ownership on firm performance have used a contemporaneous cross-sectional design. However, we are specifically interested in whether an executive’s incentive structu re affects subsequent firm performance. The model specification is similar to that of Larcker (1983) who assessed the impact of long-term accounting based incentive plans on subsequent capital expenditures. Thus the model predicts that incentive structure will affect subsequent firm performance after the period in which incentives are in place. A one-year lag seems too short for the causal process implied in the incentive alignment literature. For example, incentives theoretically alter an executive’s risk preferences, which in turn affect the executive’s investment selections, and finally these choices affect subsequent firm performance. Nevertheless, we experimented with lags of one to three years. The models with a two-year lag are presented. Results for the one-year and three-year lags were consistent with those reported here, but were not always as statistically significant.CEO stock ownership was measured as the value of stock owned by the CEO. Stock option pay was measured as the proportion of total compensation granted in stock options as follows: (stock option grants)/ (total compensation). This measure is similar to that used by several scholars (Eaton & Rosen, 1983; Mehran, 1995; Zajac &Westphal, 1994). The measure accounts for the likelihood that the effects of options on firm performance are a function not only of the size of the option grant, but how the grant relates to the total pay package given the CEO (Mehran, 1995). Options were valued using the SEC present value method, one of two methods approved by the SEC for financial reporting (the other being based on the Black-Scholes option pricing model). The SEC method was used by 70 percent of the firms in this sample in their reporting to the SEC, so the values of option pay for firms that used the alternative method in their reporting were converted to this method. The method is a simplistic present value formula based on a common discount rate for all firms. For our sample, values derived using this method are highly correlated with values derived using the Black-Scholes (r > .90). Results did not change when all options were valued with the Black-Scholes method.With respect to firm risk, we are interested in aspects of risk that are likely to be salient to decision-makers. Several distinct empirical risk factors exist and appear to be stable over time (Miller&Bromiley, 1990). Therefore, firm risk wasmeasured three ways. A simplified version of Miller and Bromiley’s (1990) categorization of risk along the dimensions of stock return, income stream, and strategic was used. The measure of stock return risk was beta. For income stream risk the standard deviation of ROA (over the 3 previous years), a commonmeasure of risk employed in the strategic management literature (Bowman, 1980; Fiegenbaum & Thomas, 1986; Miller & Bromiley, 1990) was used. For strategic risk, the firm’s debt-to-equity ratio was used. A standard measure of corporate financial leverage, the higher the level of debt, the greater the firm’s risk of bankruptcy and less margin for error the firm has in strategic decisions (Shapiro & Titman, 1986). Miller and Bromiley(1990) validated all three of these measures as gauging different types of firm risk. As decision-makers are confronted with all types of risk, and it is not known a priori how each affects specific decision contexts, all three measures were included in our analyses.Prior firm performance was controlled for two reasons. First, prior performance is likely related to the proportion of pay that is granted in the form of stock options (Mehran,1995; Yermack, 1995). Second, controlling for prior performance helps rule out alternative explanations such as inertial performance levels, regression to the mean, and other exogenousdeterminants of firm performance. The inclusion of this control variable has implicationsfor estimation methods; these implications are discussed below.Firm size wasmeasured as the log of firm sales. It was included as a control because it is generally related to the size of compensation packages (Finkelstein & Hambrick, 1996), and probably to the amount of option pay included in a CEO’s contract. In addition, firm size is likely related to subsequent firm performance levels. Zajac and Westphal (1994) and Rediker and Seth (1995) found that monitoring mechanisms may substitute for performance contingent compensation and stock ownership. Therefore, it is possible that firms with vigilant boards achieve similar levels of performance as firms with incentive alignment mechanisms. For those reasons, we controlled for the monitoring of vigilant boards by including the measure of the proportion of board outsiders, measured as the percentage of board members who are not officers of the firm.A CEO’s risk taking profile may change over the tenure of career (MacCrimmon & Wehrung, 1990). For example, CEO’s who are early in their tenure are more willing to take risks than those close to retirement are. Such differences in risk posture may, therefore, affect firm investment activity and firm performance (Tufano, 1996). CEOtenure was measured as the number of years the executive held the title of CEO in the current firm of employment.4.3. Estimation IssuesOrdinary least-squares regression (OLS) was used to estimate our models. However, thereare two issues that needed to be addressed: a lagged dependent variable and pooled, crosssectional data. Including a control for prior firm performance results in estimating a lagged dependent variable. The presence of lagged values for the dependent variable can result in inconsistent parameter estimates because the error terms are autocorrelated. Consequently, we followed procedures outlined by Ostrom (1978) and Greene (1990) and utilized the instrumental variable technique. This was done by regressing the lagged dependent variable on current and lagged independent variables as follows:Y t=α1X t+α2X t-1The lagged values for the predictions of Y are then substituted into the estimation model as the estimate for prior firm performance, which then yields consistent estimates of the errors.Because the sample contained pooled, cross-sectional data (i.e., panel), we also had to address the issue of non-independent observations. In order to correct for the bias of nonindependence, a fixed-effects model was estimated. This approach assumes that specifying a different intercept coefficient for each firm can adequately capture differences among firms. Because they model only within-firm variation over time and eliminate across-firmvariation, fixed effects models offer a very conservative test of the hypotheses and are equivalent to pooled, within-firm regressions (Judge et al., 1988). A fixed effects model was implemented by subtracting the mean value of each variable (firm specific means) form its raw score and then suppressing the intercept. Data for the ith firm were then transformed in the following way:Y it Yit– YavgiX it Xit– XavgiThis approach preserves degrees of freedom by eliminating the needto include large numbers of dummy variables in the regression equations (Judge et al., 1988). Finally, Durbin-Watson tests indicated that autocorrelation was not a problem after making the above noted transformations.5. ResultsTable 1 reports the descriptive statistics and correlations for all variables used in the study. Subsequent firm performance exhibited significant variance across firms, with average performance of 17.56 percent. CEO stock ownership averaged $4.96 million, but also varied significantly across firms. In line with what others have reported, stock option pay averaged 26 percent of total compensation, and ranged from 0 to 94 percent. There was also significant variance in our three measures of firm risk. For all regressions reported below, variable inflation factors (VIF) scores were examined. These did not indicate any serious problems ofmulticollinearity, except when multiple interactions involving a common variable were included in the model. Consequently, each interaction is reported in a separate model, which increases the chance of Type I error. Nevertheless, results for a fully specified model that included all interactions simultaneously were consistent with the results reported below.Table 2 reports the results of the OLS regressions. Model 1 reports the results for the control variables, while model 2 adds the main effects, and models 3-8 add interactions that assess the moderated relations hypothesized above. With respect to the control variable model, beta and the standard deviation of priorROAwere positively associated with subsequent firm performance. Prior performance was negatively associated with subsequent firm performance. Recall that we predicted thatCEOstock ownership and stock option pay would be positively associated with subsequent firm performance (H1a & H1b). As reported in model 2, our results were consistent with those hypotheses, as both were positive and significant.The complementary theoretical lenses of normative agency theory and behavioral decision theory were used to suggest that firm risk alters how stock ownership and stock option pay affect subsequent firm performance. These hypotheses were analyzed by estimating the regressions with multiplicative interaction terms. We predicted that firm level risk would positively moderate the relationship between executive stock ownership and subsequent firm performance (H2a). As shown inmodels 3-5, two of thethree interactions were significant (beta and standard deviation of ROA). Hypothesis H2b predicted that firm level risk would negatively moderate the relationship between stock option pay and subsequent firm performance. Models 6-8 report that interactions using two of thethree measures of risk (standard deviation of ROA and debt-to-equity) were negative andsignificant.To better understand the nature of the moderated relationships, significant interactions were decomposed into their simple effects. This allowed us to consider the effects of ownership and option pay at different levels of the moderating variables. We followed the procedures outlined by Jaccard, Turrisi, and Wan (1990: 27-28). With respect to stock ownership, we found that the slope remained positive over the entire range of firm risk, however, the slope became more positive (p <.01, adjusted Bonferoni procedure) as themoderators passed their mean values. In contrast, decomposition revealed that the slope of stock option pay was non-monotonic with respect to firm risk. Specifically, while the coefficient for stock option pay was initially positive (e.g., at low to moderate levels of firm risk), it became negative as the moderators passed their mean values (p<.01 adjusted Bonferoni procedure).6. DiscussionThe objectives of this study were twofold. First, we set out to examine whether stock option pay had incentive effects congruent with those of stock ownership. Second, we aimed to determine whether the asymmetric riskproperties of options, compared to the symmetric risk of stock ownership, would result in different effects when firm risk varied. There were three principle findings. First, we found that both executive stock ownership and stock option pay were positively associated with subsequent firm performance. Second, the effects of ownership were robust across all levels of firm risk, but became significantly more positive in firms with high levels of risk. Third, option pay resulted in higher levels of subsequent firm performance for firms with low levels of risk, but it resulted in lower levels of subsequent performance in firms with high levels of risk. These findings have important implications for academic and applied work on executive compensation and firm governance6.1 ImplicationsThe findings have a number of implications that should be of interest to those who study corporate governance and those responsible for implementing governance mechanisms. Although there has been a literal rush to implement stock option plans and to use them heavily in CEO pay packages, our findings suggest that they are not a panacea for all governance concerns. We only studied three types of firm risk, but even for these the results suggest options may be more beneficial in firms that have rather stable earnings and ample slack resources. This may be because options give executives economic incentive to experiment with new strategies and products. When firms have stable operating histories and slack resources they can absorb the misfires that undoubtedly accompany such proactive strategic changes. However, when such slack is missing, firms may suffer severe consequences for such risk taking (Singh, 1986). Thus when risk factors are high, boards may be better served to use alternative governance and incentive devices that offer not only upside potential but downside risk, as well. For example, grants of restricted stock may be a superior alternative when firm risk is high and CEOs do not otherwise ownmuch stock in the firm.This study sheds some light on the seemingly paradoxical views of incentives articulated by positivist and normative agency theorists (cf. Beatty & Zajac, 1994; Eisenhardt,1989; Murphy, 1999). The positivists prescribe pay-for-performance and other wealth alignment mechanisms because they are assumed beneficial to shareholders (Eaton & Rosen,1983; Jensen & Murphy, 1990; Mehran, 1995; Schleifer & Vishny, 1997). Alternatively, normative principal-agent scholars have cautioned that。