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The Relevance of Non-financial Performance Measures for CEO Compensation: Evidence from the Airline Industry

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  • Antonio Davila

    (Stanford University)

  • Mohan Venkatachalam

    (Duke University)

Abstract

This paper investigates the role of non-financial performance measures in executive compensation. Using a sample of airline firms we document that passenger load factor, an important non-financial measure for firms in this industry, is positively associated with CEO cash compensation. This association is significant after controlling for traditional accounting performance measures (return on assets) and financial performance measures (stock returns). This evidence is consistent with the hypothesis that non-financial measures provide incremental information about CEOs’ actions over financial measures and hence, receive a positive weight in compensation contracts. We also explore cross-sectional differences in the importance of non-financial performance measures. We find weak evidence that CEO power and the noise of financial performance measures impact the relationship between non-financial performance measures and cash compensation.

Suggested Citation

  • Antonio Davila & Mohan Venkatachalam, 2004. "The Relevance of Non-financial Performance Measures for CEO Compensation: Evidence from the Airline Industry," Review of Accounting Studies, Springer, vol. 9(4), pages 443-464, December.
    • Handle: RePEc:spr:reaccs:v:9:y:2004:i:4:d:10.1007_s11142-004-7792-8
    DOI: 10.1007/s11142-004-7792-8
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