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Watch Your Basket ‐ to Determine CEO Compensation

Author

Listed:
  • Neal Galpin
  • Hae Won (Henny) Jung
  • Lyndon Moore
  • Ekaterina Volkova

Abstract

CEOs (chief executive officers) are paid more if they outperform other firms in their blockholders’ portfolios. For every percentage point by which their own firm's return exceeds the return of the largest blockholder's basket of investments in a year, their compensation increases by over $9,800. Once we benchmark to this portfolio, industry returns and own firm returns are of little importance. When the firm is a larger portion of the blockholder's portfolio and when the blockholder is experienced, the reward for outperforming the blockholder's portfolio is greater. Our results are robust to alternate industry classifications and definitions of blockholders.

Suggested Citation

  • Neal Galpin & Hae Won (Henny) Jung & Lyndon Moore & Ekaterina Volkova, 2019. "Watch Your Basket ‐ to Determine CEO Compensation," Financial Management, Financial Management Association International, vol. 48(3), pages 945-971, September.
    • Handle: RePEc:bla:finmgt:v:48:y:2019:i:3:p:945-971
    DOI: 10.1111/fima.12243
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