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Article
Publication date: 1 August 2000

C. Joe Ueng, Donald W. Wells and Juliana D. Lilly

Prior research has investigated determinants of CEO compensation. However, that research has been primarily limited to large firms. This study investigates the impact of CEO…

2119

Abstract

Prior research has investigated determinants of CEO compensation. However, that research has been primarily limited to large firms. This study investigates the impact of CEO influence over the board of directors on CEO pay for both large and small firms. Additionally, other determinants of CEO pay for both large and small firms are examined. Results suggest that CEO influence over the board significantly affects CEO pay for large firms. However, we do not find the same evidence for small firms. Firm size is the prinmary factor of CEO pay for small firms. Evidence in this study suggests that CEO pay of large firms is mostly a function of CEO influence over the board, firm size and firm performance.

Details

Managerial Finance, vol. 26 no. 8
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 5 April 2021

Ahmed Bouteska and Salma Mefteh-Wali

The purpose of this paper is to examine the determinants of CEO compensation for sample of the US firms. It emphasizes the presence of executive compensation persistence and the…

2077

Abstract

Purpose

The purpose of this paper is to examine the determinants of CEO compensation for sample of the US firms. It emphasizes the presence of executive compensation persistence and the importance of CEO power besides performance while setting CEO pay.

Design/methodology/approach

The empirical analysis is conducted on a large sample of US firms during the period 2006–2016. It is based on the generalized method of moments (GMM) models to assess the impact of numerous factors on CEO compensation.

Findings

The main findings reveal that firm performance proxied by accounting-based proxies, as well as market-based proxies, plays a significant role in explaining variations in levels of executive compensation. Moreover, there is a significant persistence in executive compensation among the US sample firms. The authors also document that poor governance conditions (managerial power hypothesis) lead to high compensation levels offered to CEO.

Research limitations/implications

At the end, without a doubt, the analysis has some limitations that prompt the authors to consider future research directions. One future research avenue that can help better explain the effect of firm performance on the CEO compensation is to study this issue using an international sample to determine whether country-level characteristics (e.g. creditor rights, shareholder rights and the enforcement climate) can influence this relationship. Furthermore, it can be worthwhile to deepen the analysis of CEO power and its impact on CEO compensation. It will be interesting to emphasize how the CEO power interacts with the other governance characteristics and some CEO attributes as CEO gender.

Practical implications

The paper's findings have implications for practitioners, policymakers and regulatory authorities. First, the findings inform regulators that performance is not the only determinant of CEO pay level. This may warrant increased firm disclosure of the details of the pay structure. Second, the study offers insights to policymakers and members of boards of directors interested in enhancing the design of executive compensation and internal corporate governance, to better align managerial incentives to shareholder interests. Firms should strengthen the board independence and properly constitute the board committees (compensation, risk, nomination…).

Originality/value

This paper presents a comprehensive overview of the CEO compensation determinants. It supplements the classic pay-for-performance sensitivity predictions with insights gained from the dynamics of wage setting theory and managerial power theory. The authors develop a composite index to measure the CEO power in order to test the impact of CEO attributes on CEO pay. Additionally, it verifies whether the determinants of CEO pay depend on firm age and size.

Details

Journal of Applied Accounting Research, vol. 22 no. 4
Type: Research Article
ISSN: 0967-5426

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