Executive Compensation in S&P500, S&Pmidcap and S&Psmallcap Listed Firms

Abstract

This article analyzes the factors which explain executive compensation in S&P500, S&PMidCap and S&PSmallCap listed firms and the evolution of executive compensation values and components from year 1992 to 2005. Our results reveal that S&P500 executives received, on average, more than double the total compensation of S&PMidCap executives, and this difference is greater in the case of S&PSmallCap executives. If we analyze the compensation components, we can see that stock options are, on average, the most important component of compensation in S&P500, S&PMidCap and S&PSmallCap. Essentially after the Sarbanes-Oxley act in 2002, the average restricted stock options compensation value increases year after year in S&P500, S&PMidCap and S&PSmallCap and in year 2005 the average restricted stocks executive compensation value is very similar to average executive compensation value of stock options in all this three groups. In terms of the factors that explain the CEO and Directors compensation, we found that variables like ROA, executive stock ownership, CEO tenure, market value, sales increase in the last five years, the number of board meetings, and the number of stock options vested but not exercised are variables that explain executive compensation. We also found that the group of variables that explains CEOs and directors compensation is not the same when we analyse executives from S&P500 with executives from S&PMidCap and S&PSmallCap. Also the coefficients are different, and generally this difference is statically significant.