Executive Pay and Firm Performance

Abstract

This study examines the effects of executive compensation policy and organizational structure on the performance of 439 large U.S. corporations between 1981 and 1985. Companies with long-term incentive plans enjoyed significantly greater increases in ROE (return on equity) than did companies without such plans, and by 1985 long-term incentive plans had been nearly universally adopted by large corporations. Corporate success was not significantly related to the level of, or degree of equity in, executive pay, or to the steepness of pay differentials across executive ranks; it was, however, positively related to the extent of hierarchical structure, which appears to have been the primary mechanism for sorting individuals by human capital endowments and performance.

Relationship Between Ceo Compensation and Firm Performance: Empirical Evidence of Labor Market Norms

“…Another possible explanation is that stock option grants are also linked to other criteria, such as the firm's performance relative to the industry (Jensen & Murphy, 1990;Kerr & Kren, 1992); the CEOs' age and years of service or senior ity, as well as present compensation (Finkelstein & Hambrick, 1988, 1989Gerhart & Milkovich, 1990;Leonard, 1990;Rajagopalan & Prescott, 1990); and/or the CEOs' current personal wealth (Jensen & Murphy, 1990). In many cases, stock option grants are at the discretion of the board's compensation committee, which awards options based on subjective evaluations that combine all of the above crite ria (Crystal, 1991).…”

“…In order for this convergence of interests to occur, the compensation of CEOs has to be linked to performance outcomes that are of concern to shareholders. However, the relationship between managerial rewards (as measured by salary and cash bonus versus stock incentives) and firm performance (as measured by accounting earnings or market-based measures) is also influenced by managerial labor market norms linking compensation to other individual, firm-specific, and industry level variables (Finkelstein & Hambrick, 1988;Leonard, 1990). The pay-performance relationship is also a function of indi vidual manager's preferences, as well as the attractiveness of different measures of performance (Chakravarthy, 1986) to the organization's different stakeholders (Freeman, 1984).…”

Directors’ Remuneration and Firm’s Performance: A Study on Malaysian Listed Firm under Consumer Product Industry

“…Lewellen, Loderer, Martin & Blum (1992), Carpenter & Wade, 2002;Leonard, 1990). Based on the study conducted by Lewellen et al (1992), they found that executive compensation and firm performance has a positive relationship.…”

“…They concluded that those firms which pay better will perform better. There is some evidence that higher levels of pay are associated with executive human capital (Carpenter & Sanders, 2002;Leonard, 1990). According to Hogan and Mc Pheters (1980), firms that acquired better and higher skills level of executive requested a higher pay in labor markets.…”

CEO Cash Compensation and Firm Performance: An Empirical Study from Emerging Markets

“…These restrictions may imply that the stocks cannot be sold within a certain time horizon, or cannot be sold until certain performance criteria have been met. Leonard (1990) argued that an incentive contract as a remuneration should be structured on the basis of the agent meeting specific "incentives" targets in the accomplishment of his or her contract.…”