CEO’s Salary Hike: Harnessing the Factors Behind the Scene

Abstract

A chief executive officer (CEO) is typically the highest-ranking executive, and they are in general accountable to the organisation’s stakeholders and the public. Major business-related decisions are made at this position, and this makes it strategically one of the most revered and sought-after positions in the organisational hierarchy. Thus, no doubt, a CEO’s salary has been seeing an upper trend for the past 50 years. It is a complex and highly controversial topic which has received great attention across the academia, business and research fraternities. Many factors have been identified and studied to understand the reasons behind this trend. Magazines such as Forbes and Business Week have annual publications pertaining to the CEO’s compensation. This article also looks at CEO salaries; a sample size of 300 CEOs from three important sectors was taken for a multi-factor analysis to determine the most significant factors. Various discrete, continuous and categorical variables such as ‘CEO’s salary’, ‘firm’s size’, ‘No. of Directors on Board’, ‘Percentage of executive directors on Board’, ‘CEO and Chairperson are the same person’, ‘Sales growth’ and ‘Excess return of the firm over industry’s average’ and ‘sector’ were chosen for the analysis. Further, multiple regression analysis was conducted, and it was found that the ‘firm’s size’ and ‘proportion of executive directors on board’ were irrelevant in determining the CEO’s salary, while ‘dummy variable’, ‘sales growth’ and ‘excess return’ were highly significant. Additionally, the ANOVA test suggested that CEO’s mean salaries differ significantly across sectors.