CEO Compensation And Firm Performance: Is There Any Relationship?

Abstract

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="color: black; font-size: 10pt;"><span style="font-family: Times New Roman;">Recent media and public attention has focused on CEO compensation.<span style="mso-spacerun: yes;">  </span>This study looks at the relationship between CEO compensation and several measures of firm performance across a wide variety of industries.<span style="mso-spacerun: yes;">  </span>The study used a database of CEO compensation for 200 large public companies which filed proxy statements with the SEC for 2007.<span style="mso-spacerun: yes;">  </span>Total CEO compensation consists of:<span style="mso-spacerun: yes;">  </span>base salary, cash bonuses, perks, stock awards, and option awards.<span style="mso-spacerun: yes;">  </span>The measures of firm performance were:<span style="mso-spacerun: yes;">  </span>company revenue, year-to-year change in net income, and year-to-year change in total shareholder return (TSR).<span style="mso-spacerun: yes;">  </span>Correlation and regression analysis were used to test various hypotheses.<span style="mso-spacerun: yes;">  </span>We expected that total CEO compensation and its components would be directly related to financial measures of company performance.</span></span></p>