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You Can Pay Me Now and You Can Pay Me Later: The Dynamic Response of Executive Compensation to Firm Performance

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  • Boschen, John F
  • Smith, Kimberly J
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    Abstract

    Empirical studies estimating the impact of firm performance on executive pay have primarily concentrated on the short-run response. In this study, the authors present estimates of the complete dynamic response of CEO pay to firm performance. They find that the cumulative response of pay to performance is roughly ten times that of the contemporaneous response, a onetime innovation in firm performance typically raises pay over the next 4-5 years, and compensation arrangements have shifted toward greater performance sensitivity and longer-term pay arrangements over the four decades studied. Copyright 1995 by University of Chicago Press.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 68 (1995)
    Issue (Month): 4 (October)
    Pages: 577-608

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    Handle: RePEc:ucp:jnlbus:v:68:y:1995:i:4:p:577-608

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    Web page: http://www.journals.uchicago.edu/JB/

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    Cited by:
    1. Edmans, Alex & Gabaix, Xavier & Sadzik, Tomasz & Sannikov, Yuliy, 2009. "Dynamic Incentive Accounts," CEPR Discussion Papers 7497, C.E.P.R. Discussion Papers.
    2. Unite, Angelo A. & Sullivan, Michael J. & Brookman, Jeffrey & Majadillas, Mary Anne & Taningco, Angelo, 2008. "Executive pay and firm performance in the Philippines," Pacific-Basin Finance Journal, Elsevier, vol. 16(5), pages 606-623, November.
    3. Taylor, Lucian A., 2013. "CEO wage dynamics: Estimates from a learning model," Journal of Financial Economics, Elsevier, vol. 108(1), pages 79-98.
    4. Fred Guy, 2000. "CEO Pay, Shareholder Returns and Accounting Profitability," ESRC Centre for Business Research - Working Papers wp155, ESRC Centre for Business Research.
    5. Mahmoud Nourayi & Sudha Krishnan, 2006. "The impact of incentives on CEO compensation and firm performance," International Review of Economics, Springer, vol. 53(3), pages 402-420, September.
    6. Scott, John L. & Anderson, Randy I. & Webb, James R., 2005. "The labor-leisure choice in executive compensation plans: Does too much pay reduce REIT performance?," Journal of Economics and Business, Elsevier, vol. 57(2), pages 151-163.
    7. Chen, Yenn-Ru & Lee, Bong Soo, 2010. "A dynamic analysis of executive stock options: Determinants and consequences," Journal of Corporate Finance, Elsevier, vol. 16(1), pages 88-103, February.
    8. Hristos Doucouliagos & Saeed Askary & Janto Haman, 2006. "Directors' Remuneration and Performance in Australian Banking," Economics Series 2006_11, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
    9. Hristos Doucouliagos & Michael Graham & Janto Haman, 2012. "Dynamics and Convergence in Chief Executive Officer Pay," Economics Series 2012_3, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
    10. Gregory E. Sierra & Eli Talmor & James S. Wallace, 2004. "A unified analysis of executive pay: the case of the banking industry," Supervisory Policy Analysis Working Papers 2004-02, Federal Reserve Bank of St. Louis.
    11. Gregory Sierra & Eli Talmor & James Wallace, 2006. "An Examination of Multiple Governance Forces within Bank Holding Companies," Journal of Financial Services Research, Springer, vol. 29(2), pages 105-123, April.
    12. Frederick Guy, 2000. "CEO Pay, Shareholder Returns, and Accounting Profits," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 7(3), pages 263-274.
    13. Olson, Eric & Miller, Scott & Wohar, Mark E., 2012. "“Black Swans” before the “Black Swan” evidence from international LIBOR–OIS spreads," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1339-1357.
    14. Sabac, Florin, 2008. "Dynamic incentives and retirement," Journal of Accounting and Economics, Elsevier, vol. 46(1), pages 172-200, September.
    15. Andjelkovic, Aleksandar & Boyle, Glenn & McNoe, Warren, 2002. "Public disclosure of executive compensation: Do shareholders need to know?," Pacific-Basin Finance Journal, Elsevier, vol. 10(1), pages 97-117, January.
    16. Wilbur G. Lewellen, -, 1997. "Hatékonyság és eredményesség
      [Efficiency and effectiveness]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 3-12.
    17. Giorgio Canarella & Mahmoud M. Nourayi, 2008. "Executive compensation and firm performance: adjustment dynamics, non-linearity and asymmetry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(4), pages 293-315.

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