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Pay me Right: Reference Values and Executive Compensation

  • Aleksandra Gregoric
  • Saso Polanec
  • Sergeja Slapnicar

This paper studies the impact of external reference values on managerial compensation contracts. We consider the effect of adoption of non-binding pay norms on actal remuneration behavior using a unique country example. We find that introduction of pay norms changed the reference values for CEOs and led to adjustment of executive compensation towards new equilibrium. These pay norms affected pay in firms with actual compensation below and above reference values. Further we find that reference values changed compensation in all types of firms, although executive compensation increased more in firms with more dispersed ownership and control. These results confirm the importance of reference values in bargaining process between owners and managers.

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File URL: http://www.econ.kuleuven.be/licos/publications/dp/dp220.pdf
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Paper provided by LICOS - Centre for Institutions and Economic Performance, KU Leuven in its series LICOS Discussion Papers with number 22008.

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Date of creation: 2008
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Handle: RePEc:lic:licosd:22008
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  1. Tor Eriksson, 2005. "Managerial pay and executive turnover in the Czech and Slovak Republics ," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(4), pages 659-677, October.
  2. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  3. Alistair Bruce & Trevor Buck & Brian G. M. Main, 2005. "Top Executive Remuneration: A View from Europe," Journal of Management Studies, Wiley Blackwell, vol. 42(7), pages 1493-1506, November.
  4. Mahmoud Ezzamel, 2002. "Pay Comparability Across and Within UK Boards: An Empirical Analysis of the Cash Pay Awards to CEOs and Other Board Members," Journal of Management Studies, Wiley Blackwell, vol. 39(2), pages 207-232, 03.
  5. 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 225-64, April.
  6. Georgellis, Yannis & Gregoriou, Andros & Tsitsianis, Nikolaos, 2008. "Adaptation towards reference values: A non-linear perspective," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 768-781, September.
  7. 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.
  8. Botond Koszegi & Matthew Rabin, 2004. "A Model of Reference-Dependent Preferences," Method and Hist of Econ Thought 0407001, EconWPA.
  9. Duozhe Li, 2004. "Bargaining with History Dependent Preferences," Econometric Society 2004 North American Summer Meetings 516, Econometric Society.
  10. 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.
  11. Jones, Derek C. & Kato, Takao, 1996. "The determinants of chief executive compensation in transitional economies: Evidence from Bulgaria," Labour Economics, Elsevier, vol. 3(3), pages 319-336, October.
  12. Marianne Bertrand & Sendhil Mullainathan, 2001. "Are Ceos Rewarded For Luck? The Ones Without Principals Are," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 901-932, August.
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