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Determinates of Executive Compensation: A Hierarchical Linear Modeling Approach

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  • Owen P. Hall Jr.

    (Graziadio School of Business and Management, Pepperdine University, Malibu, CA, USA)

  • Kenneth Ko

    (Graziadio School of Business and Management, Pepperdine University, Malibu, CA, USA)

Abstract

Executive compensation continues to grow at a time when the rest of America is hurting. Why is this so? Many business pundits believe that there is a total disconnect between executive compensation and company performance. The purpose of this paper is to illustrate how hierarchical modeling can be used to better understand the relationship between executive compensation and organizational efficacy. An analysis of S&P1500 firms for 2004 was performed using a two level hierarchical design. The results show that a number of manager and firm characteristics affect total compensation including executive age, revenues and Tobin's Q. These results can be used by compensation committees to better align executive pay with firm performance and prevailing social norms.

Suggested Citation

  • Owen P. Hall Jr. & Kenneth Ko, 2014. "Determinates of Executive Compensation: A Hierarchical Linear Modeling Approach," International Journal of Knowledge-Based Organizations (IJKBO), IGI Global, vol. 4(2), pages 53-63, April.
    • Handle: RePEc:igg:jkbo00:v:4:y:2014:i:2:p:53-63
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    References listed on IDEAS

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