Kevin F Hallock

Executive Compensation in American Unions

Kevin F. Hallock et al. — Wed, 12 Aug 2009 08:30:16 PDT

[Excerpt] Studying compensation in the non-profit sector is difficult. In non-profit organizations, it is not always clear what the objectives of the organization are and, therefore, perhaps even more difficult to consider how to compensate managers. This paper investigates the determinants of executive compensation of leaders of American labor unions. We use panel data on more than 75,000 organization-years of unions from 2000 to 2007 to investigate these issues. We specifically concentrate on two issues of importance to unions – the level of membership and the wages of union members. Both measures are strongly related to compensation of the leaders of American labor unions, even after controlling for organization size and individual organization fixed-effects. Additionally, the elasticity of pay with respect to membership for unions is very similar to elasticity of pay with respect to employees in for-profit firms over the same period.

Employees’ Choice of Method of Pay

Kevin F. Hallock et al. — Wed, 12 Aug 2009 08:30:14 PDT

Who chooses what type of pay? The costs and benefits of “flexible” and “cafeteria-style” benefit plans have been discussed for some time. Additionally, many papers have considered the potential costs and benefits of certain types of pay plans (e.g. salaries versus piece rates). In this paper, we use detailed data from a specific firm that annually set the total compensation level for each of its employees but then did something extremely unusual. At the start of each pay year, the firm set an exchange rate for the dollar trade-off between cash pay and stock option pay. It then gave every employee nearly complete choice over the fraction of their pay that was contingent (stock options, bonus) versus guaranteed (salary). There are several empirical findings. There is substantial variation in the choice of contingent pay with some workers choosing almost all base pay and others choosing almost entirely stock options. Younger employees, more experienced employees, higher paid employees, and male employees are more likely to allocate a larger fraction of their total compensation to at-risk alternatives. The robustness of these results varies somewhat depending on the empirical specification and set of covariates used.

Review of Pay without Performance: The Unfulfilled Promise of Executive Compensation

Kevin F. Hallock — Wed, 12 Aug 2009 08:30:12 PDT

[Excerpt] Every once in a while someone comes out with an important book concerning corporate governance or executive compensation. Like Aldolf A. Berle and Gardiner C. Means's The Modern Corporation and Private Property (New York: Harcourt, Brace, and World, 1932) and Graef S. Crystal's In Search of Excess: The Overcompensation of American Executives (New York: W.W. Norton, 1991), Bebchuk and Fried's new book is thought-provoking and interesting. It is a very important book and should be read not just by those interested in executive pay or corporate governance but by anyone interested in how corporations work.

Unions and Managerial Pay

John DiNardo et al. — Wed, 12 Aug 2009 08:30:10 PDT

Unions compress the wage distribution among workers covered by union contracts. We ask whether unions also have an effect on the managers of unionized firms. To this end we collected and assembled data on unionization and managerial pay within firms and industries in the U.S. and across countries. Generally, we find a negative correlation between executive compensation and unionization in our cross-section data, but no relationship of changes in unionization on the growth of compensation of executives over time. Using NLRB elections data, we find that a loss of union members due to decertification elections is associated with higher CEO pay, although our estimates are imprecise. With CPS data we consistently find that where unions are stronger, fewer managers are employed.

Are Formal Corporate News Announcements Still Newsworthy? Evidence from Three Decades of U.S. Data on Earnings, Splits, and Dividends

Kevin F. Hallock et al. — Wed, 12 Aug 2009 08:30:08 PDT

This paper considers the share price reaction to dividend, earnings, and stock split announcements over a 30 year period. It first considers whether there is differential information content in similar corporate news announcements for different types of firms. Second, it investigates whether the value of news information about these firms has declined over time (has become “less newsworthy”). We categorize firms into groups by whether corporate news announcements regarding the firms will be more valuable to the public. For example, since the public may know more about larger firms, we expect the market to react less strongly (in absolute value) to new information from large firms. We find strong support for this idea. We find little evidence that is consistent with the idea that “news is less newsworthy” over the past few decades. Although, we do find that the share price reaction to “good” dividend news has become less positive and to “bad” dividend news has become less negative over time, no such related evidence exists for stock splits and earnings announcements. Additional investigation of entire distributions of returns using kernel density estimators also rejects the “news is no longer newsworthy” idea.

The Gender Pay and Employment Gaps for Top Managers in U.S. Nonprofits

Kevin Hallock — Wed, 12 Aug 2009 08:30:05 PDT

This paper examines the gender wage gap among managers of nonprofit organizations using newly collected detailed data on compensation of managers and accounting characteristics of nonprofits in the U.S. There are several main findings. First, women lead roughly nineteen percent of all nonprofit organizations in the sample. Second, on average, women who lead nonprofits earn roughly twenty percent less than men who lead nonprofits. Third, the fraction of nonprofits lead by women varies dramatically based on characteristics of the organization such as size (measured, for example, by income, revenue, or assets) or the “industry” of the organization. I find a generally negative relationship between the size of the nonprofit and the likelihood that a woman runs it. Finally, once even simple characteristics of the nonprofits are controlled for, the male -female salary gap in this sample of nonprofits is not significantly different from zero.

Review of Personnel Economics in Imperfect Labour Markets

Kevin F. Hallock — Wed, 12 Aug 2009 08:29:12 PDT

Excerpt] This book is an attempt to consolidate what we know about Personnel Economics by focusing on Personnel Economics in Imperfect Labor Markets. Even on the first page of the book, the author is clear about this mission. In particular he notes that "The view of personnel economics analyzed in this book is based on two key properties of... labour markets: labour markets are imperfect and jobs are associated to [sic] rents; labour market institutions interact with personnel policies. Notably, wages are partly set outside the firm-worker pair (minimum wages and collective agreements are widespread)" and "job termination policies are affected by a sizeable and binding employment protection legislation." This is a worthy goal and the idea for writing a book that focuses on imperfect labor markets is a very good one.

Reciprocally Interlocking Boards of Directors and Executive Compensation

Kevin F. Hallock — Mon, 15 Jun 2009 13:18:32 PDT

Is executive compensation influenced by the composition of the board of directors? About 8% of chief executive officers (CEOs) are reciprocally interlocked with another CEO—the current CEO of firm A serves as a director of firm B and the current CEO of firm B serves as a director of firm A. Roughly 20% of firms have at least one current or retired employee sitting on the board of another firm and vice versa. I investigate how these and other features of board composition affect CEO pay by using a sample of 9,804 director positions in America's largest companies. CEOs who lead interlocked firms earn significantly higher compensation. Also, interlocked CEOs tend to head larger firms. After controlling for firm and CEO characteristics, the pay gap is reduced dramatically. However, when firms that are interlocked due to documented business relationships are considered not interlocked, the measured return to interlock is as high as 17%. There also is evidence that the return to interlock was higher in the 1970s than in the early 1990s.

Dual Agency: Corporate Boards with Reciprocally Interlocking Relationships

Kevin F. Hallock — Mon, 15 Jun 2009 13:18:31 PDT

[Excerpt] This paper studies reciprocal interlocks of boards of directors of large firms where an employee of firm A sits on firm B's board and at the same time an employee of firm B sits on firm A's board. The study of Boards of Directors by those in economics and finance is not new. In fact, Dooley (1969) writes of interlocking directorates, but his definition is different in that he presents evidence of interlock where "at least one director ... sat on the board of at least one other of the largest companies". Books by Mizruchi (1982) and Pennings (1980) as well as many articles, for example Bearden and Mintz (1985), Bunting and Barbour (1971) and Mintz and Schwartz (1981) discuss interlocking boards in much more detail from a sociological perspective. Mizruchi and Stearns (1988) study the longitudinal formation of interlocking directorates using a small sample of firms.

This paper uses data from the early 1990s to explore reciprocal interlocks and the effects they have on firms. There are several goals, including documenting the frequency of interlocks and the characteristics of boards that interlock, exploring several different definitions of reciprocal interlock, examining whether interlocks are symptomatic of agency problems, and whether interlocks have an effect on managerial pay.

A Descriptive Analysis of Layoffs in Large U.S. Firms Using Archival Data over Three Decades and Interviews with Senior Managers

Kevin F. Hallock — Mon, 15 Jun 2009 13:17:43 PDT

This paper uses data on over 4,600 layoff announcements in the U.S., covering each firm that ever existed in the Fortune 500 between 1970 and 2000, along with 40 interviews of senior managers in 2001 and 2002 to describe layoffs in large U.S. firms over this period. In order to motivate further work in the area, I investigate six main issues related to layoffs: timing of layoffs, reasons for layoffs, the actual execution of layoffs, international workers, labor unions, and the types of workers by occupation and compensation categories. The paper draws on literature from many fields to help further understand these issues.

Job Loss: Causes, Consequences, and Policy Responses

Kristin F. Butcher et al. — Tue, 24 Mar 2009 13:08:36 PDT

From 2001 to 2003, 5.3 million workers were displaced. Beyond quantifying the numbers of jobs lost lie important questions about gains and losses from these changes and what policies may affect them. These questions will be addressed at an upcoming Chicago Fed conference.

Assessing the Impact of Job Loss on Workers and Firms

Kristin F. Butcher et al. — Tue, 24 Mar 2009 13:07:53 PDT

Many economists agree that the United States’ openness to competition and technological change raises our living standards, but sometimes results in job losses. This article summarizes “Job Loss: Causes Consequences, and Policy Responses,” a conference which was cosponsored by the Federal Reserve Bank Chicago and the Joyce Foundation.

The Gender Gap in Top Corporate Jobs

Marianne Bertrand et al. — Fri, 06 Mar 2009 11:51:34 PST

Using the ExecuComp data set, which contains information on the five highest-paid executives in each of a large number of U.S. firms for the years 1992–97, the authors examine the gender compensation gap among high-level executives. Women, who represented about 2.5% of the sample, earned about 45% less than men. As much as 75% of this gap can be explained by the fact that women managed smaller companies and were less likely to be CEO, Chair, or company President. The unexplained gap falls to less than 5% with an allowance for the younger average age and lower average seniority of the female executives. These results do not rule out the possibility of discrimination via gender segregation or unequal promotion. Between 1992 and 1997, however, women nearly tripled their participation in the top executive ranks and also strongly improved their relative compensation, mostly by gaining representation in larger corporations.

CEO Pay-For-Performance Heterogeneity: Examples Using Quantile Regression

Kevin F. Hallock et al. — Fri, 06 Mar 2009 11:51:33 PST

We provide some examples of how quantile regression can be used to investigate heterogeneity in pay–firm size and pay-performance relationships for U.S. CEOs. For example, do conditionally (predicted) high-wage managers have a stronger relationship between pay and performance than conditionally low-wage managers? Our results using data over a decade show, for some standard specifications, there is considerable heterogeneity in the returns to firm performance across the conditional distribution of wages. Quantile regression adds substantially to our understanding of the pay-performance relationship. This heterogeneity is masked when using more standard empirical techniques.

The Changing Relationship Between Job Loss Announcements and Stock Prices: 1970-1999

Henry S. Farber et al. — Fri, 06 Mar 2009 11:51:33 PST

We study the reaction of stock prices to announcements of reductions in force (RIFs) using a sample of 4273 such announcements in 1160 large firms during the 1970-99 period collected from the Wall Street Journal. We note that the total number of actual announcements for the firms in our sample follows the business cycle quite closely. We then examine changes over time in standard summary statistics (means, medians, fraction positive) of the distribution of stock market reactions, measured by the cumulative excess returns (CER) of firms’ stock prices over a 3-day event window centered on the announcement date, as well as changes over time in kernel density estimates of this distribution. We find clear evidence that the distribution of stock market reactions shifted to the right (became less negative) over time. One possible explanation for this change is that, over the last three decades, RIFs designed to improve efficiency have become more common relative to RIFs designed to cope with reductions in product demand. We estimate multivariate regression models of the CER controlling for the stated reason for the announceed layoff, industry, and other characteristics of the announced layoff. We find that almost none of the decline in the negative average stock price reaction between the 1970s and 1990s can be explained by these factors.

Managerial Pay and Governance in American Nonprofits

Kevin F. Hallock — Fri, 06 Mar 2009 11:51:32 PST

This article examines the compensation of top managers of nonprofits in the United States using panel data from tax returns of the organizations from 1992 to 1996. Studying managers in nonprofits is particularly interesting given the difficulty in measuring performance. The article examines many areas commonly studied in the executive pay (within for-profit firms) literature. It explores pay differences between for-profit and nonprofit firms, pay variability within and across nonprofit industries, managerial pay and performance (including organization size and fund raising) in nonprofits, the effect of government grants on managerial pay, and the relationship between boards of directors and managerial pay in nonprofits.

Individual Heterogeneity in the Returns to Schooling: Instrumental Variables Quantile Regression Using Twins Data

Omar Arias et al. — Fri, 06 Mar 2009 11:51:32 PST

Considerable effort has been exercised in estimating mean returns to education while carefully considering biases arising from unmeasured ability and measurement error. Recent work has investigated whether there are variations from the “mean” return to education across the population with mixed results. We use an instrumental variables estimator for quantile regression on a sample of twins to estimate an entire family of returns to education at different quantiles of the conditional distribution of wages while addressing simultaneity and measurement error biases. We test whether there is individual heterogeneity in returns to education and find that: more able individuals obtain more schooling and that higher ability individuals (those further to the right in the conditional distribution of wages) have higher returns to schooling consistent with a non-trivial interaction between schooling and unobserved abilities in the generation of earnings. The estimated returns are never lower than 9 percent and can be as high as 13 percent at the top of the conditional distribution of wages but they vary significantly only along the lower to middle quantiles. Our findings may have meaningful implications for the design of educational policies.

Quantile Regression

Roger Koenker et al. — Fri, 06 Mar 2009 11:51:31 PST

Quantile regression as introduced by Koenker and Bassett seeks to extend ideas of quantiles to the estimation of conditional quantile functions--models in which quantiles of the conditional distribution of the response variable are expressed as functions of observed covariates.

Compensation in Nonprofit Organizations

Kevin F. Hallock — Fri, 06 Mar 2009 11:51:31 PST

Although the nonprofit sector is enormous, we know little about how workers there are compensated. This may be due, in part, to the fact that the literature is scattered across many fields including Human Resources Management, Accounting, Economics, Finance, Organizational Behavior, Political Science, and Sociology. The paper aims to synthesize the research on nonprofits from an economics point of view, while carefully considering the work in the many other areas. In addition to using data from the U.S. census to provide a description of employment and wages in the nonprofit sector as well as a comparison with the for-profit sector, this paper describes institutional details in nonprofits, considers why organizations form as nonprofits, reviews possible theories for a for-profit / nonprofit wage gap, performance pay in nonprofits, management compensation in nonprofits, gender issues, and international research.

ILR Impact Brief - CEOs and Layoffs: Sometimes the CEO Suffers Similar Fate

Kevin F. Hallock et al. — Fri, 06 Mar 2009 11:51:30 PST

Mass layoffs have become an all too familiar occurrence in the United States; statistics indicate that an average of 5.7% of all employees lose their jobs in a typical year. And while many cutbacks were once meant to be temporary – that is, until demand picked up or the plant was retooled for a new model or new product – these days they more often have a permanence intended to reduce costs and boost efficiency. Companies may expect certain outcomes from workforce realignments, such as higher profits and greater productivity, but sometimes the future of the company’s chief executive is also at stake.

Previous academic studies have found links between CEO tenure and company performance. For example, researchers have shown that the probability of management turnover decreases as a company's stock price increases. In a slight variation on this theme, researchers have also shown that CEO resignations/firings tend to rise as a company’s prospects deteriorate. This particular study goes a step further and explores the relationship between layoff announcements (another indicator of company performance) and chief executives' term in office.