Title

Top Management Compensation and Shareholder Returns: Unravelling Different Models of the Relationship

Department

Management & Entrepreneurship

Document Type

Article

Publication Date

1-1999

Abstract

In order to further examine the relationship between executive pay and company performance, this paper investigates the linkage between two separate components of executive compensation (i.e. cash compensation and stock options) and market return performance, among a selected sample of US pharmaceutical company CEOs and COOs. In the surveyed sample, changes in cash compensation were found to exhibit a between-firm relationship with lagged market returns, while Δ stock option grants displayed a within-firm relationship. The former result suggests a commonality in practices across all firms, while the latter denotes idiosyncratic firm-specific practices. These contrasts represent different degrees of the agency problem in the contracts for cash compensation as compared to the stock option components. Levels of cash compensation were affected primarily by firm size. Market returns were not instrumental influences on the levels of both compensation components.

Journal

Journal of Management Studies

Journal ISSN

0022-2380

Volume

36

Issue

1

First Page

123

Last Page

143

Digital Object Identifier (DOI)

10.1111/1467-6486.00129