IDEAS home Printed from https://ideas.repec.org/p/cbr/cbrwps/wp155.html
   My bibliography  Save this paper

CEO Pay, Shareholder Returns and Accounting Profitability

Author

Listed:
  • Fred Guy

Abstract

We assess the impact on ceo pay (including salary, cash bonus, and benefits in kind) of changes in both accounting and shareholder returns in 99 british companies in the years 1972-89. After correcting for heterogeneity biases inherent in the standard specifications of the problem, we find a strong positive relationship between ceo pay and within-company changes in shareholder returns, and no statistically significant relationship between ceo pay and within-company changes in accounting returns. Differences between firms in long term average profitability do appear to have a substantial effect on ceo pay, while differences between firms in shareholder returns add nothing to the within-firm pay dynamics. These findings call into question the rationale for explicitly share-based incentive schemes.

Suggested Citation

  • Fred Guy, 2000. "CEO Pay, Shareholder Returns and Accounting Profitability," Working Papers wp155, Centre for Business Research, University of Cambridge.
  • Handle: RePEc:cbr:cbrwps:wp155
    Note: PRO-2
    as

    Download full text from publisher

    File URL: https://www.jbs.cam.ac.uk/cbrwp155/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Calvo, Guillermo A & Wellisz, Stanislaw, 1978. "Supervision, Loss of Control, and the Optimum Size of the Firm," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 943-952, October.
    2. Rosen, S., 1990. "Contracts and Market for Executives," University of Chicago - Economics Research Center 90-12, Chicago - Economics Research Center.
    3. Baker, George P & Jensen, Michael C & Murphy, Kevin J, 1988. "Compensation and Incentives: Practice vs. Theory," Journal of Finance, American Finance Association, vol. 43(3), pages 593-616, July.
    4. Cosh, Andrew, 1975. "The Remuneration of Chief Executives in the United Kingdom," Economic Journal, Royal Economic Society, vol. 85(337), pages 75-94, March.
    5. Cosh, Andy & Hughes, Alan, 1997. "Executive remuneration, executive dismissal and institutional shareholdings," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 469-492, July.
    6. Haubrich, Joseph G, 1994. "Risk Aversion, Performance Pay, and the Principal-Agent Problem," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 258-276, April.
    7. Rogerson, William P, 1997. "Intertemporal Cost Allocation and Managerial Investment Incentives: A Theory Explaining the Use of Economic Value Added as a Performance Measure," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 770-795, August.
    8. Main, Brian G M & Bruce, Alistair & Buck, Trevor, 1996. "Total Board Remuneration and Company Performance," Economic Journal, Royal Economic Society, vol. 106(439), pages 1627-1644, November.
    9. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    10. Calvo, Guillermo A & Wellisz, Stanislaw, 1979. "Hierarchy, Ability, and Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 991-1010, October.
    11. Boschen, John F & Smith, Kimberly J, 1995. "You Can Pay Me Now and You Can Pay Me Later: The Dynamic Response of Executive Compensation to Firm Performance," The Journal of Business, University of Chicago Press, vol. 68(4), pages 577-608, October.
    12. Baker, G.P. & Jensen, M.C. & Murphy, K.J., 1988. "Compensation And Incentives: Practice Vs. Theory," Papers 88-05, Rochester, Business - Managerial Economics Research Center.
    13. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
    14. Meeks, Geoffrey & Whittington, Geoffrey, 1975. "Directors' Pay, Growth and Profitability," Journal of Industrial Economics, Wiley Blackwell, vol. 24(1), pages 1-14, September.
    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. Frederick Guy, 2004. "Earnings distribution, corporate governance and CEO pay," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(1), pages 51-65.
    2. Burks, Stephen V & Guy, Frederick & Maxwell, Benjamin, 2004. "7. Shifting Gears In The Corner Office: Deregulation And The Earnings Of Trucking Executives," Research in Transportation Economics, Elsevier, vol. 10(1), pages 137-164, January.

    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. Frederick Guy, 2000. "CEO Pay, Shareholder Returns, and Accounting Profits," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 7(3), pages 263-274.
    2. repec:eee:labchp:v:3:y:1999:i:pb:p:2485-2563 is not listed on IDEAS
    3. Hristos Doucouliagos & Janto Haman & T.D. Stanley, 2012. "Pay for Performance and Corporate Governance Reform," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 51(3), pages 670-703, July.
    4. Frederick Guy, 2004. "Earnings distribution, corporate governance and CEO pay," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(1), pages 51-65.
    5. 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.
    6. Kenneth W. Clements & H. Y. Izan, 2008. "The Stairway to the Top: The Remuneration of Academic Executives," Australian Journal of Management, Australian School of Business, vol. 33(1), pages 1-30, June.
    7. Ying Yan, 1998. "The FDICIA and bank CEOs' pay-performance relationship: an empirical investigation," Working Papers (Old Series) 9805, Federal Reserve Bank of Cleveland.
    8. O. Brown Jr., William, 1998. "Transaction costs, corporate hierarchies, and the theory of franchising," Journal of Economic Behavior & Organization, Elsevier, vol. 36(3), pages 319-329, August.
    9. Carola Frydman & Raven E. Saks, 2010. "Executive Compensation: A New View from a Long-Term Perspective, 1936--2005," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 2099-2138.
    10. Alex Edmans & Xavier Gabaix, 2016. "Executive Compensation: A Modern Primer," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1232-1287, December.
    11. Mäkinen, Mikko, . "Essays on Stock Option Schemes and CEO Compensation," ETLA A, The Research Institute of the Finnish Economy, number 42.
    12. Alexander K. Koch & Julia Nafziger, 2012. "Job Assignments under Moral Hazard: The Peter Principle Revisited," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(4), pages 1029-1059, December.
    13. Chung, Kee H. & Pruitt, Stephen W., 1996. "Executive ownership, corporate value, and executive compensation: A unifying framework," Journal of Banking & Finance, Elsevier, vol. 20(7), pages 1135-1159, August.
    14. Cosh, Andy & Hughes, Alan, 1997. "Executive remuneration, executive dismissal and institutional shareholdings," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 469-492, July.
    15. Michael Waldman, 1990. "A Signalling Explanation for Seniority Based Promotions and Other Labor Market Puzzles," UCLA Economics Working Papers 599, UCLA Department of Economics.
    16. Burks, Stephen V & Guy, Frederick & Maxwell, Benjamin, 2004. "7. Shifting Gears In The Corner Office: Deregulation And The Earnings Of Trucking Executives," Research in Transportation Economics, Elsevier, vol. 10(1), pages 137-164, January.
    17. Dato, Simon & Grunewald, Andreas & Kräkel, Matthias & Müller, Daniel, 2016. "Asymmetric employer information, promotions, and the wage policy of firms," Games and Economic Behavior, Elsevier, vol. 100(C), pages 273-300.
    18. Raaj Kumar Sah, 1991. "Fallibility in Human Organizations and Political Systems," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 67-88, Spring.
    19. Chen, Chao-Jung & Hsu, Chung-Yuan & Chen, Yu-Lin, 2014. "The impact of family control on the top management compensation mix and incentive orientation," International Review of Economics & Finance, Elsevier, vol. 32(C), pages 29-46.
    20. Gaumont, D. & Merlateau, M.P., 1993. "Manager's Incentives and Individual Wealth," Working Paper Series 379, Research Institute of Industrial Economics.
    21. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    22. Garner, Jacqueline L. & Kim, Won Yong, 2013. "Are foreign investors really beneficial? Evidence from South Korea," Pacific-Basin Finance Journal, Elsevier, vol. 25(C), pages 62-84.

    More about this item

    Keywords

    ceo pay; random coefficients;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

    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:cbr:cbrwps:wp155. 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: Ruth Newman (email available below). General contact details of provider: http://www.jbs.cam.ac.uk .

    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.