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Top Management Compensation and Shareholder Returns: Unravelling Different Models of the Relationship

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  • Rajaram Veliyath

Abstract

In order to further examine the relationship between executive pay and company performance, this paper investigates the linkage between two separate components of executive compensation (i.e. cash compensation and stock options) and market return performance, among a selected sample of US pharmaceutical company CEOs and COOs. In the surveyed sample, changes in cash compensation were found to exhibit a between‐firm relationship with lagged market returns, while Δ stock option grants displayed a within‐firm relationship. The former result suggests a commonality in practices across all firms, while the latter denotes idiosyncratic firm‐specific practices. These contrasts represent different degrees of the agency problem in the contracts for cash compensation as compared to the stock option components. Levels of cash compensation were affected primarily by firm size. Market returns were not instrumental influences on the levels of both compensation components

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  • Rajaram Veliyath, 1999. "Top Management Compensation and Shareholder Returns: Unravelling Different Models of the Relationship," Journal of Management Studies, Wiley Blackwell, vol. 36(1), pages 123-143, January.
    • Handle: RePEc:bla:jomstd:v:36:y:1999:i:1:p:123-143
    DOI: 10.1111/1467-6486.00129
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    Cited by:

    1. Li-Hui Chung & Ching-Chun Wei, 2017. "The Impact Effect of Corporate Governance and Corporate Social Responsibility on Company Performance After the Financial Tsunami," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 5(4), pages 465-479, December.
    2. Fong, Eric A. & Xing, Xuejing & Orman, Wafa Hakim & Mackenzie, William I., 2015. "Consequences of deviating from predicted CEO labor market compensation on long-term firm value," Journal of Business Research, Elsevier, vol. 68(2), pages 299-305.
    3. Stefan Schmid & Sebastian Baldermann, 2021. "CEOs’ International Work Experience and Compensation," Management International Review, Springer, vol. 61(3), pages 313-364, June.

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