IESE Research Papers,
IESE Business School

Abstract: We empirically examine how governance structure affects the design of executive compensation contracts and, in particular, the implicit weights of firm performance measures in CEO compensation. We find that compensation contracts in firms with higher takeover protection and where the CEO has more influence on governance decisions put more weight on accounting-based measures of performance (return on assets) than on stock-based performance measures (market returns). In additional tests, we further find that CEO compensation in these firms has lower variance and a higher proportion of cash (versus stock-based) compensation. We further find that CEOs' incentives (measured as changes in CEO annual wealth, which includes changes in the value of CEOs' equity holdings, in addition to yearly compensation) do not vary across governance structures. These findings are consistent with CEOs in firms with high takeover protection and high CEO influence on governance being able to influence the contracting.

Keywords: CEO compensation; executive compensation; performance measures; compensation contracts

30 pages, July 7, 2005

Full text files

DI-0601-E.pdf  

Download statistics

• IESE Business School
• Ordering Working Papers
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Noelia Romero ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:ebg:iesewp:d-0601This page generated on 2024-09-13 22:20:02.