Wolves in the Hen-House? The Consequences of Formal CEO Involvement in the Executive Pay-Setting Process
AbstractNew Zealand firms exhibit significant variation in the extent to which they formally involve CEOs in the executive pay-setting process: a considerable number sit on the compensation committee, while others are excluded from the board altogether. Using 1997-2005 data, we find that CEOs who sit on the compensation committee obtain generous annual pay rewards that have low sensitivity to poor performance shocks. By contrast, CEOs who are not board members receive pay increments that have low mean and high sensitivity to firm performance. Moreover, the greater the pay increment attributable to CEO involvement in the pay-setting process, the weaker is subsequent firm performance over one, three- and five-year periods.
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Bibliographic InfoPaper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 10/45.
Length: 20 pages
Date of creation: 29 Jul 2010
Date of revision:
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pay-performance sensitivity; compensation committee; CEO influence;
Find related papers by JEL classification:
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-06 (All new papers)
- NEP-BEC-2010-08-06 (Business Economics)
- NEP-CFN-2010-08-06 (Corporate Finance)
- NEP-LAB-2010-08-06 (Labour Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rajesh Aggarwal & Andrew A. Samwick, 1998.
"The Other Side of the Tradeoff: The Impact of Risk on Executive Compensation,"
NBER Working Papers
6634, National Bureau of Economic Research, Inc.
- Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "The Other Side of the Trade-off: The Impact of Risk on Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 65-105, February.
- 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.
- Andres, Christian & Fernau, Erik & Theissen, Erik, 2012. "Is it better to say goodbye? When former executives set executive pay," CFR Working Papers 12-02, University of Cologne, Centre for Financial Research (CFR).
- Andres, Christian & Fernau, Erik & Theissen, Erik, 2013. "Should I stay or should I go? Former CEOs as monitors," CFR Working Papers 12-02 [rev.], University of Cologne, Centre for Financial Research (CFR).
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