Watch Your Basket - to Determine CEO Compensation

CEOs (chief executive officers) are paid more if they outperform other firms in their blockholders' portfolios. For every percentage point by which their own firm's return exceeds the return of the largest blockholder's basket of investments in a year, their compensation increases by...

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Bibliographic Details
Published in:Financial management 2019-09, Vol.48 (3), p.945-971
Main Authors: Galpin, Neal, Jung, Hae Won (Henny), Moore, Lyndon, Volkova, Ekaterina
Format: Article
Language:English
Subjects:
Benchmarking
Chief executive officers
Chief executives
Classification
Compensation
Compensation and benefits
Convenience foods
Executive compensation
Food industry
Investments
Media executives
Portfolios
Securities analysis
Stock prices
Stockholders
Citations: Items that this one cites
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Summary:CEOs (chief executive officers) are paid more if they outperform other firms in their blockholders' portfolios. For every percentage point by which their own firm's return exceeds the return of the largest blockholder's basket of investments in a year, their compensation increases by over $9,800. Once we benchmark to this portfolio, industry returns and own firm returns are of little importance. When the firm is a larger portion of the blockholder's portfolio and when the blockholder is experienced, the reward for outperforming the blockholder's portfolio is greater. Our results are robust to alternate industry classifications and definitions of blockholders.
ISSN:0046-3892
1755-053X
DOI:10.1111/fima.12243