CEO Pay For Long-Run Performance: A Dynamic View

Main Article Content

Ji-Young Ahn

Keywords

Pay For Performance, CEO Compensation, Long-Term Performance, Dynamic Agency View

Abstract

This study examines multi-year dynamic response of CEO compensation to firm performance. Multi-period agency theories posit that the CEO's current performance can be compensated both today and tomorrow. This study investigates the dynamic view of CEO pay and firm performance by using partial adjustment models of CEO pay. We find that target pay levels are set on “long-run” past firm performance and that the deviation of the actual pay level causes near-complete convergence to the target in one year. Overall, the findings here indicate that a pay-for-contemporaneous-only-performance relationship significantly understates the incentive effects of CEO pay.

Downloads

Download data is not yet available.
Abstract 316 | PDF Downloads 495