Does Educational Background Affect CEO Compensation And Firm Performance?

Abstract

This paper examines the educational background of Chief Executive Officers (CEOs) from large U.S. firms. Forbes CEO compensation lists and Compustat data covering 500 or more firms annually are utilized in the analysis for the period 1997-2006. Universities are ranked based on the number of graduates placed in top CEO positions and of the total compensation their graduates earn as CEO. Results show a select group of schools educate a large proportion of top CEOs. Harvard dominates the CEO market at all educational levels. Results show low correlation between university placement rankings and compensation rankings. Regressions on CEO compensation provide additional insights into CEO compensation determinants. Regressions of CEO educational variables on firm performance measures identify links between CEO education and firm performance. This is the first known paper to examine CEO gender as a determinant of compensation and firm performance. The evidence here provides hiring and compensation committees valuable information on appropriate hiring, retention and compensation strategies. It also provides government officials additional insights for designing appropriate regulations.