Executive Remuneration and the Payout Decision

Executive Remuneration and the Payout Decision

Philipp Geiler, Luc Renneboog

Series number :

Serial Number: 
420/2014

Date posted :

May 01 2014

Last revised :

May 26 2014
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Keywords

  • executive compensation • 
  • payout policy • 
  • dividends • 
  • share repurchases • 
  • market sentiment
We analyze the payout channel choice of listed UK firms and examine whether the choice between dividends, share repurchases, a combination of payout channels, or complete earnings retention is affected by investor sentiment, taxation, major shareholder ownership, and in particular the CEO?s compensation package.
The payout choice can have an immediate effect on the value of the CEO?s stock options and restricted stock, whereby anticipated dividends drive down the value of her equity-based pay if it is not dividend-protected whereas share repurchases may have a positive impact. We use a quantile regression analysis to examine various payout scenarios as well as a nested logit model which studies payout choice conditional on changing payout levels. We find that it is the CEO?s personal wealth as reflected by her compensation package rather than shareholder preferences which has the strongest impact on the firm?s payout policy.

Authors

Real name: 
Philipp Geiler
Academic Member
EMLYON Business School