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The long-term impact of CEO compensation structure on CEO pay for luck and asymmetry

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Listed:
  • Yixi Ning

    (University of Houston – Victoria)

  • Jun Yang

    (University of Houston – Victoria)

  • Yuan Wang

    (University of Houston – Victoria)

Abstract

This study examines the impact of long-term trend of CEO pay structure on CEO pay for luck and the asymmetric benchmarking of CEO pay over a 72-year period from 1949 to 2020. We find that both CEO pay structure and pay for non-performance incur dramatic changes since the 1970s. The widely adopted options awarded to CEOs since the 1980s not only lead to a sharp increase of the level of CEO compensation, but also significantly amplify the phenomenon of CEO pay for non-performance and pay asymmetry. However, a wave of executive pay-related regulations in the 2000s and the rapidly rising stock awards have changed the situation characterized by the diminishing CEO pay for luck and pay asymmetry in the past decades. Our findings support a time-varying CEO pay for luck and pay asymmetry in the long run due to the changing CEO compensation structure under various circumstances.

Suggested Citation

  • Yixi Ning & Jun Yang & Yuan Wang, 2024. "The long-term impact of CEO compensation structure on CEO pay for luck and asymmetry," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 48(3), pages 834-856, September.
    • Handle: RePEc:spr:jecfin:v:48:y:2024:i:3:d:10.1007_s12197-024-09679-6
    DOI: 10.1007/s12197-024-09679-6
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    References listed on IDEAS

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    1. Lucian Bebchuk, 2005. "The Growth of Executive Pay," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 21(2), pages 283-303, Summer.
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    3. Garvey, Gerald T. & Milbourn, Todd T., 2006. "Asymmetric benchmarking in compensation: Executives are rewarded for good luck but not penalized for bad," Journal of Financial Economics, Elsevier, vol. 82(1), pages 197-225, October.
    4. Campbell, T. Colin & Thompson, Mary Elizabeth, 2015. "Why are CEOs paid for good luck? An empirical comparison of explanations for pay-for-luck asymmetry," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 247-264.
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    6. Marianne Bertrand & Sendhil Mullainathan, 2001. "Are CEOs Rewarded for Luck? The Ones Without Principals Are," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(3), pages 901-932.
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