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CEO Incentives: Measurement, Determinants, and Impact on Performance

Listed author(s):
  • Peng, Lin
  • Röell, Ailsa A
  • Tang, Hongfei
Registered author(s):

    We examine, both theoretically and empirically, the determinants and performance impact of three measures of CEO incentives: pay-performance elasticity (PPE), semi-elasticity (PPSE), and sensitivity (PPS). Larger, more R&D intensive, and low-idiosyncratic risk firms have higher PPE and PPSE, resolving puzzling prior empirical findings based on PPS. Performance is generally hump-shaped in PPE and PPSE; shortfalls relative to predicted levels appear particularly detrimental to firm performance, suggesting that the average firm's incentives are at the low end of the optimal range. Overall, the results obtained with the PPE and PPSE measures accord better with economic intuition than those obtained using PPS.

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    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 11417.

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    Date of creation: Jul 2016
    Handle: RePEc:cpr:ceprdp:11417
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