IDEAS home Printed from https://ideas.repec.org/a/sae/amerec/v49y2005i2p33-43.html
   My bibliography  Save this article

Executive Compensation Incentives in a Volatile Market

Author

Listed:
  • Miles B. Cahill
  • Alaina C. George

Abstract

Recent literature has been conflicted as to whether executive compensation schemes have significant incentive pay elements. The most well-known study supporting the existence of pay-for-performance used data corresponding to the recent bull market of the 1990s. This paper estimates a similar model of incentive pay using data from more recent volatile markets of 1999–2001, and finds that the incentive component of executive pay has at least diminished, and has perhaps reversed. Thus, incentive pay may be something of a “fair weather†phenomenon.

Suggested Citation

  • Miles B. Cahill & Alaina C. George, 2005. "Executive Compensation Incentives in a Volatile Market," The American Economist, Sage Publications, vol. 49(2), pages 33-43, October.
    • Handle: RePEc:sae:amerec:v:49:y:2005:i:2:p:33-43
    DOI: 10.1177/056943450504900204
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/056943450504900204
    Download Restriction: no
    File URL: https://libkey.io/10.1177/056943450504900204?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Bebchuk, Lucian Arye & Fried, Jesse & Walker, David I, 2002. "Managerial Power and Rent Extraction in the Design of Executive Compensation," CEPR Discussion Papers 3558, C.E.P.R. Discussion Papers.
    3. Xianming Zhou, 2002. "A Graphical Approach to the Standard Principal-Agent Model," The Journal of Economic Education, Taylor & Francis Journals, vol. 33(3), pages 265-276, September.
    4. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    5. Lucian Bebchuk & Jesse Fried, 2002. "Power, rent extraction, and executive compensation," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 3(03), pages 23-28, October.
    6. Lucian Arye Bebchuk & Jesse M. Fried, 2003. "Executive Compensation as an Agency Problem," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 71-92, Summer.
    7. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-264, April.
    8. Brian J. Hall & Jeffrey B. Liebman, 1998. "Are CEOs Really Paid Like Bureaucrats?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 653-691.
    9. Garen, John E, 1994. "Executive Compensation and Principal-Agent Theory," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1175-1199, December.
    10. May, Don O, 1995. "Do Managerial Motives Influence Firm Risk Reduction Strategies?," Journal of Finance, American Finance Association, vol. 50(4), pages 1291-1308, September.
    11. Bebchuk, Lucian A. & Fried, Jesse M., 2003. "Executive Compensation as an Agency Problem," Berkeley Olin Program in Law & Economics, Working Paper Series qt81q3136r, Berkeley Olin Program in Law & Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Owen P. Hall Jr. & Kenneth Ko, 2014. "Determinates of Executive Compensation: A Hierarchical Linear Modeling Approach," International Journal of Knowledge-Based Organizations (IJKBO), IGI Global, vol. 4(2), pages 53-63, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Page, T. Beau, 2018. "CEO attributes, compensation, and firm value: Evidence from a structural estimation," Journal of Financial Economics, Elsevier, vol. 128(2), pages 378-401.
    2. Daniel Beck & Gunther Friedl & Peter Schäfer, 2020. "Executive compensation in Germany," Journal of Business Economics, Springer, vol. 90(5), pages 787-824, June.
    3. Calcagno, R. & Renneboog, L.D.R., 2004. "Capital Structure and Managerial Compensation : The Effects of Renumeration Seniority," Discussion Paper 2004-120, Tilburg University, Center for Economic Research.
    4. Yaowen Shan & Terry Walter, 2016. "Towards a Set of Design Principles for Executive Compensation Contracts," Abacus, Accounting Foundation, University of Sydney, vol. 52(4), pages 619-684, December.
    5. Chongwoo Choe & Gloria Tian & Xiangkang Yin, 2008. "Managerial Power, Stock-Based Compensation, And Firm Performance: Theory And Evidence," Monash Economics Working Papers 21/08, Monash University, Department of Economics.
    6. Miguel Antón & Florian Ederer & Mireia Giné & Martin Schmalz, 2023. "Common Ownership, Competition, and Top Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 131(5), pages 1294-1355.
    7. de La Bruslerie, H. & Deffains-Crapsky, C., 2008. "Information asymmetry, contract design and process of negotiation: The stock options awarding case," Journal of Corporate Finance, Elsevier, vol. 14(2), pages 73-91, April.
    8. Dietl Helmut M & Duschl Tobias & Lang Markus, 2011. "Executive Pay Regulation: What Regulators, Shareholders, and Managers Can Learn from Major Sports Leagues," Business and Politics, De Gruyter, vol. 13(2), pages 1-32, August.
    9. Gao, Huasheng, 2010. "Optimal compensation contracts when managers can hedge," Journal of Financial Economics, Elsevier, vol. 97(2), pages 218-238, August.
    10. Catuogno, Simona & Arena, Claudia & Cirillo, Alessandro & Pennacchio, Luca, 2018. "Exploring the relation between family ownership and incentive stock options: The contingency of family leadership, board monitoring and financial crisis," Journal of Family Business Strategy, Elsevier, vol. 9(1), pages 59-72.
    11. Renneboog, Luc & Zhao, Yang, 2011. "Us knows us in the UK: On director networks and CEO compensation," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1132-1157, September.
    12. Fu, Xudong & Lian, Qin & Tang, Tian & Wang, Qiming, 2015. "An empirical study of executive option grants around initial public offerings," The Quarterly Review of Economics and Finance, Elsevier, vol. 57(C), pages 207-221.
    13. Andrea Melis & Silvia Carta & Silvia Gaia, 2012. "Executive remuneration in blockholder-dominated firms. How do Italian firms use stock options?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 16(3), pages 511-541, August.
    14. Peter Jaskiewicz & Joern H. Block & James G. Combs & Danny Miller, 2017. "The Effects of Founder and Family Ownership on Hired CEOs’ Incentives and Firm Performance," Entrepreneurship Theory and Practice, , vol. 41(1), pages 73-103, January.
    15. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 49-100.
    16. Akram, Farheen & Abrar ul haq, Muhammad, 2018. "Assessing the Effect of Managerial Power on Firm Performance through the Perceptual Lens of Executive Remuneration," MPRA Paper 100050, University Library of Munich, Germany, revised 2019.
    17. Jean Canil & Bruce Rosser, 2012. "Australian evidence on CEO option grants," Multinational Finance Journal, Multinational Finance Journal, vol. 16(3-4), pages 225-260, September.
    18. Chongwoo Choe, 2006. "Optimal CEO Compensation: Some Equivalence Results," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 171-201, January.
    19. Hsu, Audrey Wen-hsin & Shyu, Yi-Ru & Wang, Victoria Shao-Pin, 2014. "Non-compensation-related consultant service and CEO compensation," Journal of Contemporary Accounting and Economics, Elsevier, vol. 10(1), pages 59-75.
    20. Ingolf Dittmann & Ernst Maug, 2007. "Lower Salaries and No Options? On the Optimal Structure of Executive Pay," Journal of Finance, American Finance Association, vol. 62(1), pages 303-343, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:amerec:v:49:y:2005:i:2:p:33-43. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://journals.sagepub.com/home/aex .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.