An Empirical Investigation of the Relative Performance Evaluation of Corporate Executives

Antle, Rick; Smith, Abbie J.

doi:10.2307/2490802

Cited by 585 publications

(295 citation statements)

References 34 publications

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“…Researcher showed that the level of executive compensation mainly depends on company properties as well as on personal characteristics of the manager. Firm size (Fahlenbrach 2009;Renner et al 2002) firm performance (Antle and Smith 1986;Bebchuk and Fried 2006;Devers et al 2007), and a firm's ownership structure (Thomsen and Pedersen 2000;Chowdhury and Wang 2009) are company properties that researchers identified as drivers of executive compensation levels. Managers' tenure (Hill and Phan 1991) and gender (Kulich et al 2011;Renner et al 2002), on the other hand, are personal characteristics that influence managers' compensation levels directly or as moderating effects, e.g., through affecting labor market mobility and search firms' preferences (Dreher et al 2011).…”

Section: Literature Overview Theoretical Background and Hypothesesmentioning

confidence: 99%

“…As financial characteristics, we use LEVERAGE (quotient of total debt to total assets) as a proxy for the company's capital structure (Shaw and Zhang 2010) as well as the variable RISK (standard deviation of the operating performance over the focal and the 2 preceding years divided by their mean-winsorized to guard from outliers) to depict firm risk. We incorporate an accounting-based as well as a stock-based measure for firm performance (Kulich et al 2011;Adams and Ferreira 2009), i.e., the company's ROE and TOBIN'S Q, respectively, to control for their effects on executive compensation (Antle and Smith 1986;Bebchuk and Fried 2006;Devers et al 2007).…”

Section: Variablesmentioning

confidence: 99%

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Beyond human capital explanations for the gender pay gap among executives: investigating board embeddedness effects on discrimination

Oehmichen

Sarry

Wolff

2014

Bus Res

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This paper examines the gender pay gap in top management teams and how it is affected by directors’ embeddedness. We can reconfirm the result of previous studies that differences in managerial compensation between women and men exist, even after controlling for company properties and human capital attributes. Drawing on the language theory of discrimination, we then question how the embeddedness of directors—the actual deciders on executive compensation levels—affects the pay gap: embeddedness causing homophilous behavior resulting in a higher pay gap or directors using their network as knowledge source and decreasing the pay gap. We find evidence that knowledge effects outweigh potential homophily effects.

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Section: Literature Overview Theoretical Background and Hypothesesmentioning

confidence: 99%

Section: Variablesmentioning

confidence: 99%

Beyond human capital explanations for the gender pay gap among executives: investigating board embeddedness effects on discrimination

Oehmichen

Sarry

Wolff

2014

Bus Res

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“…This paper is also related to a growing interest among economists in the role of peer effects and social influences. 5 Antle and Smith (1986) were one of the first to examine the effect of relative performance evaluation on executive compensation. There are several papers that examine the role of relative performance pay.…”

Section: Introductionmentioning

confidence: 99%

Keeping up with CEO Jones: Benchmarking and executive compensation

Laschever¹

2013

Journal of Economic Behavior & Organization

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This paper seeks to understand the role that peer comparisons play in the determination of executive compensation. I exploit a recent change in the Securities and Exchange Commission's regulations that requires firms to disclose the peer companies used for determining the compensation of their top executives. Using a new dataset of S&P 900 companies' choice of benchmarking firms during two fiscal periods (2007 and 2008), I investigate what determines the choice of comparison firms. I find that companies have a preference for choosing larger and higher-CEO-compensation firms as their benchmark. Though I find that companies prefer to choose as their benchmark peers with similar firm characteristics, for CEO compensation, this effect is countered by a preference for firms with higher-than-own CEO compensation. Using the complete map of firms' choices, I implement an instrumental variable strategy that uses the characteristics of peers-of-peers to estimate the effect of others' compensation on own compensation. For Fiscal Year 2007, I find an elasticity of 0.5. KeywordsExecutive compensation, peer effects, benchmark, CEO AbstractThis paper seeks to understand the role that peer comparisons play in the determination of executive compensation. I exploit a recent change in the Securities and Exchange Commission's regulations that requires firms to disclose the peer companies used for determining the compensation of their top executives. Using a new dataset of S&P 900 companies' choice of benchmarking firms during two fiscal periods (2007 and 2008), I investigate what determines the choice of comparison firms. I find that companies have a preference for choosing larger and higher-CEO-compensation firms as their benchmark. Though I find that companies prefer to choose as their benchmark peers with similar firm characteristics, for CEO compensation, this effect is countered by a preference for firms with higher-than-own CEO compensation. Using the complete map of firms' choices, I implement an instrumental variable strategy that uses the characteristics of peers-of-peers to estimate the effect of others' compensation on own compensation. For Fiscal Year 2007, I find an elasticity of 0.5.

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“…Results are mixed. Antle andSmith (1986) andJanakiraman Lambert andLarcker (1992), performing longitudinal analyses, conclude that evidence is only weakly consistent with RPE. Gibbons and Murphy (1990), analysing pooled cross-sectional time series, …nd a negative and signi…cant relation between changes in CEO compensations and both market and industry performance.…”

Section: Introductionmentioning

confidence: 99%

Relative performance evaluation in a multi-plant firm

Luporini

2006

Economic Theory

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We analyze optimal compensation schedules for the directors of two plants belonging to the same owner and producing the same good but serving geographically di¤erentiated markets. Since the outcome of each director depends on his own e¤ort and on a random variable representing market conditions, the problem takes the form of a principal multi-agent model. We …rst provide appropriate extensions of the MLR and CDF conditions that ensure the validity of the …rst-order approach in the single agent case. Then, we show that a¢ liation of the random variables is a necessary and su¢ cient condition for the compensation of one director to negatively and monotonically depend on the performance of the other.

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An Empirical Investigation of the Relative Performance Evaluation of Corporate Executives

Cited by 585 publications

References 34 publications

Beyond human capital explanations for the gender pay gap among executives: investigating board embeddedness effects on discrimination

Beyond human capital explanations for the gender pay gap among executives: investigating board embeddedness effects on discrimination

Keeping up with CEO Jones: Benchmarking and executive compensation

Relative performance evaluation in a multi-plant firm

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