Like many of you, my mailboxes, physical and electronic, are filling with proxy statements as companies plan their annual shareholder meetings. And, each year, executive compensation seems to attract a greater level of attention in these proxies and meetings. For example, in 2001, ExxonMobil dedicated nine pages and slightly more than 3,000 words to the compensation committee’s report; the associated proxy filed in April 2011 dedicated 28 pages and 12,000 words to this same topic. This year, because of the Wall Street Reform and Consumer Protection Act of 2010 (better known as the Dodd-Frank Act), shareholders will vote on how frequently they will be asked to approve executives’ future pay packages (“say on pay”).
The questions are simple: Are shareholders getting their money’s worth? Are executives making too much? While many shareholders complain when a CEO draws an eight-figure compensation package, many of these same individuals enjoy movies and sporting events where actors and athletes are compensated in a similar manner, regardless of their performance. Viewed in a different way, from January 1, 2010 through December 31, 2010, Apple’s stock price increased by $130 per share and Apple had 900 million shares outstanding. During 2010, this translates to an increase in shareholder value of $117 billion. If Steve Jobs had a hand in creating that value, shouldn’t he be rewarded? (Interestingly, he only received $1 of compensation in each of 2008—2010.)
There is no correct answer to the two questions posed above. Markets exist for top talent, whether in business, entertainment, or athletics. If top talent creates value for shareholders, that talent should be compensated accordingly. Markets, however, are not perfect. Based on performance, some executives are overpaid and others underpaid. What is clear is that shareholders will have a more public forum to express their thoughts.
In the biorhythm of the academic year, this time of year ties together all the loose ends, providing a sense of finality. Next week I will attend graduation again. This must be how my daughter, who is a pediatrician, feels when she attends a child’s birth. It is incredibly unique to the participants, but the doctor has seen this before. Actually, Linda and I have already attended nine graduations of our own children, and we likely have at least three more to attend, the Lord willing.
This does not count all the graduations I have attended in my 22 years as a professor. They have varied in size and approach, but I am taken by how the people involved always embrace the event. In my first academic stop, I was not a fan of attending what seemed an impersonal exercise. In my second job, all faculty members were required to attend graduation and, since there were only about 100 of us, you would be noticed if you didn’t. Faculty would wait at the end of the stage for students from their discipline to walk off, and the students would go through a receiving line of handshakes and hugs. It was a very personal experience, usually held on the college lawn in May. It is one of the reasons that parents spend inordinate amounts of money to send their kids to small liberal arts schools.
As everyone knows, the ceremonies themselves are inordinately boring, almost without fail. Because of the size of the graduation, Texas A&M hosts the keynote speaker at a commencement convocation on Thursday prior to the five graduation ceremonies on Friday and Saturday. This shortens the graduation ceremony considerably, but it also removes virtually all hope that anything memorable will be said. But this does not mean that the ceremony is unimportant.
If Muster is what brings us back and holds us together, graduation is what propels us forward. For students, it is the uncertain embracing of responsibility, a little like cliff diving when you are not exactly sure how deep the water is. For those of us who invest in these students, it is a bittersweet goodbye to conversations in the hallway and the classroom, and a recognition that we are largely unnecessary to our students’ future successes. This is healthy, because there are others who need our investment. To linger too long regretting our losses is to miss the opportunity to invest our lives again.
This morning at Starbucks I saw Jessica, who is two years removed from this place that she loves, early in her marriage and motoring forward with her accounting firm. It brightened my day to see her face. But it heartened me even more to hear that she is investing her life in ministering to the homeless in Dallas through her church, even while she assumes substantial responsibility running jobs at the firm. She is not simply pursuing wealth and building business skills; she is investing in people and leading, inside and outside the work environment.
Last weekend Linda, Nathan and I drove to central Oklahoma to meet our older son, Kenny, at a state park. We spent our time together hiking and playing games but, more than anything, we laughed. It was a celebration of life, both life as we knew it and life as it is. Our boys are ten years apart in age. One still needs us, to some extent, and the other one doesn’t. One has gone on to greater things, the other aspires to greatness.
Still, it is clear to me how important it is to plug back in, to recharge, and to remember. It would be sad for Kenny if he did not have a place to return to where he is loved unconditionally, not based on his performance as a line manager in a Cessna plant. It would also be sad if he had not moved forward into his life apart from us. We pray the same will be true for his younger brother, and we are grateful for how Kenny reaches out to mentor Nathan in making the transition, while affirming him in who he is as a high school sophomore.
We have seen this happen before with our children, but we are reaching the end of watching these transitions. On the other hand, as long as I have the privilege of entering the university classroom, I will watch this process repeat itself with my students. I will cheer from the bleachers for them, and I will pose for a few pictures afterwards. I will rejoice in the celebration of their accomplishments.
I will watch them walk across that stage, and down the steps, and into a world that desperately needs people of character who will invest themselves in others. I will watch them walk forward confidently, but not without a glance over the shoulder to remember what this place has provided them.
Because, on a May Saturday in a place like this, walking forward into the waiting world is exactly what you ought to do.
When you think of camp, you think of sunny summer days, arts and crafts, and – at Mays – marketing analysis.
For several faculty members and staff researchers, the 2011 Mays Marketing Research Camp opened the door for collaboration on recent studies and publications. Venkatesh Shankar, the marketing Ph.D. program director and Brandon C. Coleman, Jr. Chair in Marketing, organized the camp to assemble prominent figures in the marketing research field and give them an opportunity to share their work.
Mays marketing PhD program director Venkatesh Shankar (left) recognizes University of Rochester professor Sanjog Misra during the sixth annual Mays Marketing Research Camp. Misra was one of four scholars to present at the event.
Speakers Gary Frazier (Editor in Chief, Journal of Marketing) of the University of Southern California, Sanjog Misra of the University of Rochester, Rishika Ramkumar of Texas A&M and Cait Poynor Lamberton of the University of Pittsburg discussed their research with Mays marketing faculty and doctoral students and received helpful feedback and collaboration. This active participation on behalf of the audience led to a dynamic ask-and-answer approach to the presentations, which enriched the overall structure of the camp itself.
Shankar said the opportunity for researchers and practitioners to communicate about innovation in organizations is rare.
“It is so important in our field, because we have to make our own reputations,” he said. “This way, the people in charge of selecting the projects to publish are talking with our faculty and grad students. It is an ongoing conversation.”
Mays marketing faculty and doctoral students were encouraged to contribute to the presentations with questions, discussions and feedback to help produce innovative ideas in the research field. Assembling these marketing scholars in an open-communication forum is a unique concept that both contributes to the overall findings and generates interest in Mays Business School.
Shankar said his biggest challenge is accommodating the editors who want to participate. “It is delicate,” he said. “I always tell them I would love to have them here, but we are booked up, then I set them up for the following year.”
The sixth annual camp featured presentations on research in the fields of sales force compensation structures, the strength of online social communities, franchise channel relationships and allocation with compulsory payments.
2011 Mays Marketing Research Camp presentations
Contracts, Extra-Contractual Incentives, and Ex Post Behavior in Franchise Channel Relationships
Gary Frazier, Richard and Jarda Hurd Chair in Distribution Management and Professor of Marketing, Editor-in-Chief, Journal of Marketing, Marshall School of Business, University of Southern California
Inherently, franchise and franchisee relationships are fraught with challenges. There may be a franchise control problem, where franchisees may have an incentive to maximize their own profit at the expense of the franchise. As a result, franchisors attempt to prevent these problems through contract formulation. However, some problems relating to these contracts are the following: (1) no contract is complete; (2) monitoring can be counterproductive; and (3) there may be selective enforcement issues. However, to help overcome these constraints, there are a number of governance behaviors that can be undertaken to manage franchisee relationships after the start of the relationship; specifically, these are (1) behavior monitoring, (2) output monitoring, and (3) enforcement. The authors look at the combinations of these governance mechanisms and the resulting effects on franchisee opportunism and compliance in the context of the US auto industry. They conclude that none of the governance mechanisms used in isolation helped to reduce opportunism or to elicit compliance. In fact, when behavior monitoring is performed alone, it actually reduces franchisee compliance levels. Their empirical results show that the best outcome is a combination of these mechanisms. Specifically, behavior and output monitoring increased compliance as did enforcement and output monitoring. With regards, to increasing opportunism, enforcement combined with behavior monitoring provided the best result.
• • • • •
A Structural Model of Sales Force Compensation Dynamics: Estimation and Field Implementation
Sanjog Misra, Associate Professor of Marketing and Applied Statistics, Simon Associate Professor of Marketing and Applied Statistics, Simon Graduate School of Business, University of Rochester
Personal selling is an important component of the economy- accounting for over 40% of total sales. Furthermore, in many cases, the salesforce becomes the interface between the firm and the consumer. The authors posit that one should be able to see patterns in the selling behavior; specifically, that salespeople can manipulate the timing of their sales in order to meet specific quotas. There is some evidence of this manipulation when looking at the quarterly sales pattern. Looking at the data from a manufacturer of contact lens in the US, the authors clearly show that salespeople would significantly increase their levels of effort as their quota targets approached. To quantify this behavior, the authors develop an empirical model to understand the dynamics of salesforce compensation which will then be used to help inform the firm about the best compensation route to take in order to maximize firm profits. Interestingly, one of the key findings is that salespeople are extremely capable of exerting just enough effort in order to achieve their target sales quota, thus suggesting that there is the ability to control the level of exerted effort. Using these behavior findings, the authors begin to design the optimal compensation plan. However, given real world constraints, they developed a set of feasible compensation plans. Ultimately, the firm selected one of these profit enhancing compensation frameworks and has seen a substantial and sustained increase in profits.
• • • • •
The Effect of Asymmetric Social Ties on Online Contribution: The Role of Tie Strength and Homophily
Rishika Ramkumar, Assistant Professor of Marketing, Mays Business School, Texas A&M University
While participation in online social communities continues to increase at a rapid rate, the number of those contributing content, such as user reviews, remains at a very low level. Increasing online contribution can result in improved user experiences, and from a firm’s perspective, can improve their revenue stream by driving an increase in their web traffic. In order to improve the online experience, we need to understand what drives online contribution in online communities and how a user’s network impacts her motivation to contribute content. A key component of these online communities is that users can create their own social networks thus forming unique social ties. Understanding how influential these social ties are may depend of the strength of the relationship and also on shared characteristics. Using data from an online music blog aggregator that aggregates over 1500 music blog post, the authors model the effect of tie strength on contribution. A key conclusion is that stronger network ties were more influential in decision making than weaker network ties.
• • • • •
A Spoonful of Choice: Using Allocation to Increase Consumer Satisfaction with Compulsory Payments
Cait Poynor Lamberton, Fryrear Faculty Fellow and Assistant Professor of Business Administration, Katz School of Business, University of Pittsburgh
All spending is not considered equal in the minds of consumers. Some payments, such as taxes or home owner association fees, are inherently more painful to make. These compulsory payments offer collective benefits with low levels of upfront choice; this combination prompts low levels of satisfaction with the expenditure experience. What if you give consumers a little bit more choice in how they allocate their spending? Would this make payments less painful in the cases of collective benefits? The authors study how the allocation of a small portion of the payment across different expenditure categories influences consumers’ satisfaction levels. They find that this allocation can increase satisfaction with compulsory payments, and this increased level of satisfaction can be done with relatively small proportions of allocation amount. Thus, giving consumers “partial choice” led to a decrease in their level of reactance and an increase in their perceived level of benefit.
The questions are simple: Are shareholders getting their money’s worth? Are executives making too much? While many shareholders complain when a CEO draws an eight-figure compensation package, many of these same individuals enjoy movies and sporting events where actors and athletes are compensated in a similar manner, regardless of their performance. Viewed in a different way, from January 1, 2010 through December 31, 2010, Apple’s stock price increased by $130 per share and Apple had 900 million shares outstanding. During 2010, this translates to an increase in shareholder value of $117 billion. If Steve Jobs had a hand in creating that value, shouldn’t he be rewarded? (Interestingly, he only received $1 of compensation in each of 2008—2010.)
