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CEO Pay, Shareholder Returns and Accounting Profitability

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Author Info
Fred Guy
Abstract

We assess the impact on ceo pay (including salary, cash bonus, and benefits in kind) of changes in both accounting and shareholder returns in 99 british companies in the years 1972-89. After correcting for heterogeneity biases inherent in the standard specifications of the problem, we find a strong positive relationship between ceo pay and within-company changes in shareholder returns, and no statistically significant relationship between ceo pay and within-company changes in accounting returns. Differences between firms in long term average profitability do appear to have a substantial effect on ceo pay, while differences between firms in shareholder returns add nothing to the within-firm pay dynamics. These findings call into question the rationale for explicitly share-based incentive schemes.

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Paper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp155.

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Date of creation: Mar 2000
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Handle: RePEc:cbr:cbrwps:wp155

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Related research
Keywords: ceo pay; random coefficients;

Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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    Other versions:
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    Other versions:
  8. Rogerson, William P, 1997. "Intertemporal Cost Allocation and Managerial Investment Incentives: A Theory Explaining the Use of Economic Value Added as a Performance Measure," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 770-95, August.
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    Other versions:
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