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CEO Pay, Shareholder Returns and Accounting Profitability

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  • Fred Guy

Abstract

We assess the impact on ceo pay (including salary, cash bonus, and benefits in kind) of changes in both accounting and shareholder returns in 99 british companies in the years 1972-89. After correcting for heterogeneity biases inherent in the standard specifications of the problem, we find a strong positive relationship between ceo pay and within-company changes in shareholder returns, and no statistically significant relationship between ceo pay and within-company changes in accounting returns. Differences between firms in long term average profitability do appear to have a substantial effect on ceo pay, while differences between firms in shareholder returns add nothing to the within-firm pay dynamics. These findings call into question the rationale for explicitly share-based incentive schemes.

Suggested Citation

  • Fred Guy, 2000. "CEO Pay, Shareholder Returns and Accounting Profitability," Working Papers wp155, Centre for Business Research, University of Cambridge.
    • Handle: RePEc:cbr:cbrwps:wp155
    Note: PRO-2
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    Cited by:

    1. Frederick Guy, 2004. "Earnings distribution, corporate governance and CEO pay," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(1), pages 51-65.
    2. Burks, Stephen V & Guy, Frederick & Maxwell, Benjamin, 2004. "7. Shifting Gears In The Corner Office: Deregulation And The Earnings Of Trucking Executives," Research in Transportation Economics, Elsevier, vol. 10(1), pages 137-164, January.

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    More about this item

    Keywords

    ceo pay; random coefficients;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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