Abstract
This study examines multi-year dynamic response of CEO compensation to firm performance. Multi-period agency theories posit that the CEO's current performance can be compensated both today and tomorrow. This study investigates the dynamic view of CEO pay and firm performance by using partial adjustment models of CEO pay. We find that target pay levels are set on “long-run” past firm performance and that the deviation of the actual pay level causes near-complete convergence to the target in one year. Overall, the findings here indicate that a pay-for-contemporaneous-only-performance relationship significantly understates the incentive effects of CEO pay.
| Original language | English |
|---|---|
| Pages (from-to) | 317-330 |
| Number of pages | 14 |
| Journal | Journal of Applied Business Research |
| Volume | 31 |
| Issue number | 1 |
| DOIs | |
| State | Published - 2015 |
Bibliographical note
Publisher Copyright:© by author(s).
Keywords
- CEO compensation
- Dynamic agency view
- Long-term performance
- Pay for performance