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Chief Executive Compensation: An Empirical Study of Fat Cat CEOs

Author

Listed:
  • Dan Lin
  • Hsien-Chang Kuo
  • Lei-Huey Wang

Abstract

This paper empirically tests the determinants of executive pay. In order to gain more understanding of the fat cat problem that have been subject to hot debate, we also examine a sample firms that suffer from the fat cat problem, defined as firms with poor performance while their Chief Executive Offers (CEOs) receive high compensation. Based on a sample of 903 US firms between 2007 and 2010, we find that there is a substitution effect between CEO compensation and the level of CEO ownership and that larger firms give higher pay to their CEOs. When the sample is limited to fat cat companies only, we find that tenure and firm size are significantly positively associated with CEO compensation. The firm size, leverage ratio and investment opportunities are found to be significantly associated with the CEO total compensation when the sample is limited to fat cat companies in the financial services industries. Overall, firm size appears to be the most important determinant of CEO compensation and that there is a general lack of linkage between pay and performance. The evidence thus calls for public attention for reexamining the effectiveness of current pay system.

Suggested Citation

  • Dan Lin & Hsien-Chang Kuo & Lei-Huey Wang, 2013. "Chief Executive Compensation: An Empirical Study of Fat Cat CEOs," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(2), pages 27-42.
    • Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:2:p:27-42
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    Citations

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    Cited by:

    1. Kuo, Hsien-Chang & Lin, Dan & Lien, Donald & Wang, Lie-Huey & Yeh, Li-Jen, 2014. "Is there an inverse U-shaped relationship between pay and performance?," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 347-357.
    2. Faten Zoghlami, 2021. "Does CEO compensation matter in boosting firm performance? Evidence from listed French firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 143-155, January.
    3. Tomi Ovaska & Albert J. Sumell, 2014. "Who Has The Advantage? An Economic Exploration of Winning in Men's Professional Tennis," The American Economist, Sage Publications, vol. 59(1), pages 34-51, May.
    4. I-Hsin Chien & Yu-Ju Chen & Tsun-Jui Hsieh, 2018. "Ceo Compensation And Earnings Sensitivity: A Perspective From Ceo Duality," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 12(1), pages 1-13.
    5. Mehtap A. Eklund, 2024. "CEO compensation and market risk: moderating effect of board size and CEO duality in the Swiss context," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 21(2), pages 227-240, June.
    6. Confidence Amadi & Felicia Amadi, 2017. "Is There An Industry Effect in Executive Compensation? Evidence from Aerospace/Defense and Leisure/Hospitality Industry," International Journal of Business and Management, Canadian Center of Science and Education, vol. 12(8), pages 1-51, July.
    7. Farzan Yahya & Zahiruddin B. Ghazali, 2017. "Effectiveness of board governance and dividend policy as alignment mechanisms to firm performance and CEO compensation," Cogent Business & Management, Taylor & Francis Journals, vol. 4(1), pages 1398124-139, January.
    8. Darko Tipuric & Danica Bakotic & Marina Lovrincevic, 2013. "Exploring The Link Between Executive Compensation Package And Executives' Pay Satisfaction In Croatian Companies: An Empirical Study," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 9(2), pages 7-16.
    9. Ling Jong & Poh-Ling Ho, 2018. "Inside the family firms: The impact of family and institutional ownership on executive remuneration," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1432095-143, January.
    10. Stefan Schmid & Sebastian Baldermann, 2021. "CEOs’ International Work Experience and Compensation," Management International Review, Springer, vol. 61(3), pages 313-364, June.

    More about this item

    Keywords

    Executive Compensation; Fat Cat; Pay-Performance Relationship;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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