The traditional concern of most economic analyses of corporate behavior has been with the hypothesis that top executives of an enterprise direct their managerial activities in such a manner as to maximize the monetary well-being of its fiduciary owner, the stockholders. However, recently the possibility has been raised that goals other than maximization profits or common stock price might well govern top executives' behavior. More than a decade ago Baumol observed that [1, p. 46] , "Executives' salaries appear to be far more closely related with scale of operations of the firm than its profitability." This statement, which was a corollary to his "sales maximization" hypothesis, has served as a theoretical framework of two well-known executive compensation studies. The first one was by McGuire, Chiu, and Elbing [4] which concluded that sales and compensation were more highly correlated than were profits and compensation. The authors of a later inquiry, Lewellen and Huntsman [3, pp. 718-19], on the other hand, inferred that: "Because the results of the study persistently indicate that both repoited profits and equity market values are substantially more important in the determination of executive compensation than are sales-indeed, sales seem to be quite irrelevant-the clear inference is that there is a greater incentive for management to shape its decision rules in a manner consonant with shareholder interests than to seek the alternative goal of revenue maximization." Lewellen and Huntsman's multivariate regression results totally refute both Baumol's hypothesis and McGuire et al. 's findings. Our empirical scrutiny shows that earlier analysis is either too simple or contains a fundamental statistical prob*Ohio University. lem, namely multicollinearity, which allowed them to reach conclusions as they did. In the following paragraphs we will a t tempt to show that as one discerns this problem and methodologically resolves it one would arrive at conclusions supportive of the original hypothesis postulated by Baumol [ 1 ] . According to Baumol, the overall most important performance variables which the top executives consider are (i) profits and (ii) sales; ergo, it is hypothesized that welfare of top executives is a function of (i) profits and (ii) sales. Their welfare is measured by the amount of total compensation which they receive from their firms. Specifically, the functional form is as follows: