Article: Loose risk management mechanisms of corporate governance of Greek firms; rewards to board from earnings that are not based on performance incentive plans Journal: International Journal of Risk Assessment and Management (IJRAM) 2008 Vol.9 No.1/2 pp.104 - 120 Abstract: Following the Greek commercial law, a number of listed firms in the Athens Stock Exchange (ASE) offer to members of the board of directors tax-free annual remuneration from distributed earnings. Rewards from the earnings might exist even if the firms do not have explicit bonus plans and, therefore, this type of compensation looks similar to a hybrid between bonus and standard annual salary. Moreover, given that the final approval in the granting of this remuneration is taken in annual shareholder meetings, one can regard rewards to board from the earnings as a loose mechanism of motivation. Using a sample of 696 firm–year observations for the period 1993–2002, we provide evidence consistent with the argument that either shareholders view this type of compensation as a bonus rather as expense per se or that the board signals information to the shareholders. Moreover, we provide evidence in favour of the higher quality of earnings for firm–year observations, in which the board is rewarded from earnings. This suggests that this loose mechanism of motivation can work as well as long-term incentive plans. Inderscience Publishers - linking academia, business and industry through research

Title: Loose risk management mechanisms of corporate governance of Greek firms; rewards to board from earnings that are not based on performance incentive plans

Authors: Nikolaos Eriotis, Vasileios Zisis

Addresses: Department of Economics, National and Kapodistrian University of Athens, 5 Stadiou Street, Athens GR-105 62, Greece. ' Department of Business Administration, Athens University of Economics and Business, 76, Patission Street, Athens GR-104 34, Greece

Abstract: Following the Greek commercial law, a number of listed firms in the Athens Stock Exchange (ASE) offer to members of the board of directors tax-free annual remuneration from distributed earnings. Rewards from the earnings might exist even if the firms do not have explicit bonus plans and, therefore, this type of compensation looks similar to a hybrid between bonus and standard annual salary. Moreover, given that the final approval in the granting of this remuneration is taken in annual shareholder meetings, one can regard rewards to board from the earnings as a loose mechanism of motivation. Using a sample of 696 firm–year observations for the period 1993–2002, we provide evidence consistent with the argument that either shareholders view this type of compensation as a bonus rather as expense per se or that the board signals information to the shareholders. Moreover, we provide evidence in favour of the higher quality of earnings for firm–year observations, in which the board is rewarded from earnings. This suggests that this loose mechanism of motivation can work as well as long-term incentive plans.

Keywords: rewards to board; motivation; information content; earnings quality; Greek firms; risk management; corporate governance; tax-free annual remunerations; Athens Stock Exchange; Greece; bonuses.

DOI: 10.1504/IJRAM.2008.019315

International Journal of Risk Assessment and Management, 2008 Vol.9 No.1/2, pp.104 - 120

Published online: 07 Jul 2008 *

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Title: Loose risk management mechanisms of corporate governance of Greek firms; rewards to board from earnings that are not based on performance incentive plans

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