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Determinants of Chief Executive Officer Compensation

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  • John R. Deckop

Abstract

This study investigates correlates of Chief Executive Officer (CEO) compensation, with particular emphasis on measures of firm performance. An analysis of data from 120 firms in 1977–81 shows that, contrary to the findings of some other studies, CEOs were not given an incentive through compensation to increase the size of the firm at the expense of profit. Rather, CEO compensation was positively related to profit as a percentage of sales. Also, CEOs recruited from outside the firm earned significantly more than internally promoted CEOs, and both of those groups earned significantly more than CEOs who were founders of the firm. The market equity value of the firm and the CEO's age and years of service as a CEO had little effect on compensation.

Suggested Citation

  • John R. Deckop, 1988. "Determinants of Chief Executive Officer Compensation," ILR Review, Cornell University, ILR School, vol. 41(2), pages 215-226, January.
    • Handle: RePEc:sae:ilrrev:v:41:y:1988:i:2:p:215-226
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    Cited by:

    1. Stefan Winter & Philip Michels, 2019. "The managerial power approach: Is it testable?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 23(3), pages 637-668, September.
    2. Katja Rost & Soren Salomo & Margit Osterloh, 2008. "CEO Appointments and the Loss of Firm-specific Knowledge - Putting Integrity Back into Hiring Decisions," CREMA Working Paper Series 2008-27, Center for Research in Economics, Management and the Arts (CREMA).
    3. Brockman, Paul & Lee, Hye Seung (Grace) & Salas, Jesus M., 2016. "Determinants of CEO compensation: Generalist–specialist versus insider–outsider attributes," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 53-77.
    4. Guoli Chen, 2015. "Initial compensation of new CEOs hired in turnaround situations," Strategic Management Journal, Wiley Blackwell, vol. 36(12), pages 1895-1917, December.
    5. Christopher I. Rider & David Tan, 2015. "Labor Market Advantages of Organizational Status: A Study of Lateral Partner Hiring by Large U.S. Law Firms," Organization Science, INFORMS, vol. 26(2), pages 356-372, April.
    6. 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.
    7. John M. Abowd & David S. Kaplan, 1999. "Executive Compensation: Six Questions That Need Answering," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 145-168, Fall.
    8. Monem, Reza & Ng, Chew, 2013. "Australia’s ‘two-strikes’ rule and the pay-performance link: Are shareholders judicious?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 9(2), pages 237-254.
    9. Silvia Gaia, 2013. "La remunerazione dell?amministratore delegato durante la crisi finanziaria: un?analisi empirica," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2013(2), pages 111-128.
    10. Bowlin, William F. & Renner, Celia J., 2008. "Assessing gender and top-management-team pay in the S&P Mid-Cap and Small-Cap companies using data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 185(1), pages 430-437, February.
    11. W F Bowlin & C J Renner & J M Rives, 2003. "A DEA study of gender equity in executive compensation," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 54(7), pages 751-757, July.

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