Abstract
Current practice of management cash compensation is based on budgeted, financial targets. These financial targets for a year may be above, equal to or below previous year?s publicly available performance measures based in part on the prevailing economic conditions. Accordingly, during economic growth a positive relation is predicted between changes of management cash compensation and corporate performance measures like changes in annual report or return on equity. On the other hand, during economic downturn, a flat relation between changes in management cash compensation and simple changes in corporate performance is predicted. The evidence of this study is based on the period of 1987 - 1995. Pooled, cross sectional results are consistent with the propositions of significant positive relation during economic growth, no relation between changes in management cash compensation and changes in measures of corporate performance during periods of economic downturn.
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