Performance pay sensitivity: Do top management incentives align with shareholder value creation?

Publikation: Beiträge in ZeitschriftenZeitschriftenaufsätzeForschungbegutachtet

Authors

Arising from the principal-agent consideration, Jensen and Murphy (1990b) studied the pay-performance sensitivity (including pay, options, stockholdings, and dismissal) for chief executive officers (CEOs) in the 1980s. They found that CEO wealth changes $3.25 for every $1,000 change in shareholder wealth. In this study, we revisit the issue of the linkage between CEO pay and performance but with the difference that we only include observable measures in the pay-performance sensitivity estimate. Our data on executive compensation stems from the ExecuComp database on S&P 1500 firms, and the performance data from the Center for Research in Security Prices (CRSP) database (total: 23,737 firm-year observations). We find that CEO wealth changes $5.34 for every $1,000 change in shareholder wealth. Almost all of this sensitivity is attributed to compensation through stock options and the CEO’s inside stockholdings. Today, the incentives generated by stock options have increased thirteen times, and the total pay-performance sensitivity has almost doubled in value, compared to when Jensen and Murphy (1990b) estimated the pay-performance sensitivity in the 1980s for the first time. Despite the increased pay performance sensitivity, we hypothesize that internal and external political forces negatively affect the CEO’s performance incentives. Compensation constraints reduce the pay performance sensitivity and hereby the incentives for the CEO to maximize shareholder wealth. Further research on how CEO wealth varies with absolute and relative corporate performance is required to determine if the CEO’s incentives are consistent with shareholder wealth maximization.
OriginalspracheEnglisch
ZeitschriftCorporate Ownership & Control
Jahrgang19
Ausgabenummer3
Seiten (von - bis)168-181
Anzahl der Seiten14
ISSN1727-9232
DOIs
PublikationsstatusErschienen - 08.2022

Dokumente

DOI

Zuletzt angesehen

Publikationen

  1. Strukturwandel als unternehmerische Herausforderung - Wettbewerbsstrategien in der Bauindustrie
  2. Recommendations for evaluating temporal trends of persistent organic pollutants in breast milk
  3. Patients' experiences in a guided Internet- and App-based stress intervention for college students
  4. Critical Evaluation of Sustainable Development Goals and Circular Economy in (Business) Education
  5. Limited knowledge flow among stakeholders of critically endangered renosterveld in South Africa
  6. How real options and ecological resilience thinking can assist in environmental risk management
  7. Scenarios for coal-exit in Germany-a model-based analysis and implications in the European context
  8. INFLEXIBLE COMMODITY PRICES AS A RESULT OF PROFIT MAXIMIZATION - REPLY TO A COMMENT BY MAUSSNER,A.
  9. Analyis of a Potential Single and Combined Business Model for Stationary Battery Storage Systems
  10. Estimating the aquatic emissions and fate of perfluorooctane sulfonate (PFOS) into the river Rhine
  11. Changes in butterfly movements along a gradient of land use in farmlands of Transylvania (Romania)
  12. Socioecological drivers facilitating biodiversity conservation in traditional farming landscapes
  13. Characterizing social-ecological units to inform biodiversity conservation in cultural landscapes
  14. Internet- and App-Based Stress Intervention for Distance-Learning Students With Depressive Symptoms
  15. Abfallvermeidungsprogramme im neuen Kreislaufwirtschaftsgesetz – ein Beitrag zum Ressourcenschutz?
  16. Can management-sponsored non-binding remuneration votes shape the executive compensation structure?
  17. Credit constraints, idiosyncratic risks, and the wealth ditribution in a heterogeneous agent model
  18. Institutional relatedness and the emergence of renewable energy cooperatives in German districts
  19. Effect of laser peen forming process parameters on bending and surface quality of Ti-6Al-4V sheets
  20. Grenzüberschreitende Hunde- und Hauskatzentransporte innerhalb der EU durch sog. Flugpatenschaften