Firm Size and Executive Compensation: The Impact of the Foreign Operations on US Companies
研究了1980-2000年间美国跨国公司海外经营规模对CEO薪酬的影响，发现海外资产、销售和净利润与薪酬显著相关，对设计高管薪酬方案有参考价值。
Recent studies of firm size as a determinant of executive compensation did not differentiate impact of foreign from domestic operations despite growing economic importance of former. In light of unique risk in conducting business abroad, we estimate impact of foreign operations of U.S.- based MNCs on compensation of executives. The results, based on data for period 1980-2000, indicate a significant correlation between executive compensation and independent variables representing foreign operations, size (assets and sales) and performance (net profit). As these variables reflect outcome of innovative strategies for profitable expansion, they are important for devising compensation packages for CEOs. This methodology is a significant improvement of earlier models that utilize total assets, total sales, total profit etc, as explanatory variables. Some of recent studies of executive compensation, for example, Ciscel and Carroll, (1980) and Baker, Jensen and Murphy (1988) find that size of firms, measured by sales or revenues, is significant. Most of these studies focus on large U.S.- based firms with extensive foreign operations of over 50% of total assets, sales and net profit (see Forbes, July 26,1999). The limitation of these studies is their failure to make a distinction between domestic and foreign operations. Ongoing cross-border mergers and acquisitions, joint ventures and foreign direct investments have increased economic importance of multinational corporations' (MNCs') foreign operations. This paper examines extent to which CEOs compensation is impacted by size of foreign operations of US MNCs. The unique risks (exchange rate, political, tax, economic, inflation, regulatory and multicultural, (see Shapiro, 1996) associated with foreign operations require innovative policies to maximize shareholder wealth in a competitive global economy. An empirical model, using three independent variables measuring foreign component of total assets, sales, and net income, is estimated using annual data for period 1980-2000. Companies with significant foreign operations are examined. We offer following hypotheses H1: The higher foreign/total sales ratio higher will be level of compensation. H2: The higher foreign/total asset ratio higher will be level of compensation. H3: The higher foreign/total profit ratio higher will be level of compensation. The main reason for promoting these hypotheses is that foreign operations require greater managerial effort and /or a higher skill level, which should be highly compensated. The importance of this paper must be viewed in light of: (a) challenging tasks faced by CEOs because of increasing transnational activities, and (b) development of appropriate compensation packages in recognition of foreign risks. Lambert and Larcker (1991) note that an increase in risk exposure may cause a CEO to be conservative in his investment strategy and turn down risky projects that may promise higher expected returns to shareholders or accept safe projects with stable but substandard returns. McLaughlin (1991, page 22) also notes that the tax, legal, regulatory, and economic environment in which a compensation program must function is constantly changing and this can undermine or thwart well-intentioned plans. PREVIOUS RESEARCH CEO compensation contracts have received considerable critical scrutiny, primarily that compensations are unrelated to firm profitability. The effect of firm size on compensation is primary focus of earlier studies, for example, Baumol (1959) contends that executive salaries are more correlated with scale of a firm's operation than with its profitability, McGuire, Chiu, and Elbing (1962), find executive compensation (measured by salary plus bonus) more correlated with sales than profitability, thus lending further support to revenue-maximizing theory of firm. …