On the relation between managerial power and CEO pay

• 成果类型: Article
• 署名作者: Goex, Robert F.; Hemmer, Thomas
• 署名单位: University of Zurich; Rice University
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2020.101300
• 发表日期: 2020
• 关键词: executive-compensation; Performance evaluation; Board independence; CONTRACTS; signals; MARKET; RISK

摘要

We study how friendly boards design the structure of optimal compensation contracts in favor of powerful CEOs. Our study yields unexpected results. First, powerful managers receive higher pay and a contract with a higher pay-performance sensitivity (PPS) if firm performance is low and vice versa. Moreover, we identify conditions where expected pay and expected PPS are both increasing in the friendliness of the board. Second, we show that friendly boards provide managers with higher salaries, more shares, but less options. Third, friendly boards offering contracts with a higher PPS also make more intensive use of relative performance evaluation (RPE). Overall, our results suggest that frequently used indicators of poor (or sound) compensation practices should be interpreted with care. Extending the scope of our model beyond executive pay, we show that powerful managers underinvest in capital but have less incentives to manage earnings. (C) 2020 Elsevier B.V. All rights reserved.