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Public Opinion and Executive Compensation

Author

Listed:
  • Camelia M. Kuhnen

    (Department of Finance, Kellogg School of Management, Northwestern University, Evanston, Illinois 60208)

  • Alexandra Niessen

    (Department of Finance, University of Mannheim, Mannheim 68167, Germany)

Abstract

We investigate whether public opinion influences the level and structure of executive compensation. During 1992-2008, the negativity of press coverage of chief executive officer (CEO) pay varied significantly, with stock options being the most criticized pay component. We find that after more negative press coverage of CEO pay, firms reduce option grants and increase less contentious types of pay such as salary, although overall compensation does not change. The reduction in option pay after increased press negativity is more pronounced when firms, CEOs, and boards have stronger reputation concerns. Our within-firm, within-year identification shows the results cannot be explained by annual changes in accounting rules regarding executive compensation, stock market conditions, or pay mean reversion. This paper was accepted by Brad Barber, finance.

Suggested Citation

  • Camelia M. Kuhnen & Alexandra Niessen, 2012. "Public Opinion and Executive Compensation," Management Science, INFORMS, vol. 58(7), pages 1249-1272, July.
  • Handle: RePEc:inm:ormnsc:v:58:y:2012:i:7:p:1249-1272
    DOI: 10.1287/mnsc.1110.1490
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    More about this item

    Keywords

    executive compensation; public opinion; media coverage;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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