Synchronous and lagged relationships between CEO pay and performance of quality companies

Abstract

Purpose

This paper aims to examine the synchronous and lagged relationships between CEOs' pay and the performance of a group of public companies that had won a very prestigious award: the Malcolm Baldrige National Quality Award (MBNQA).

Design/methodology/approach

This study uses three rates of return to represent firm performance: return on assets, return on equity and holding period return. Regression analysis is used to determine the direction of causality between CEO pay and firm performance and the existence of lagged relationship between them.

Findings

The findings indicate the existence of synchronous and lagged relationships between CEO pay and firm performance. However, the direction of causality is mainly from pay to performance, and not vice versa.

Research limitations/implications

The results presented in this paper are limited by the small sample size of MBNQA winning companies. Although the award began in 1988, only a few companies won the award each year and many of them were not public companies. In addition, five companies won the award twice and one company won the award three times, which further reduces the sample size.

Originality/value

This paper finds the existence of synchronous and lagged relationships between CEO pay and firm performance for a group of quality companies.

Citation

Tai, L.S. (2008), "Synchronous and lagged relationships between CEO pay and performance of quality companies", Managerial Finance, Vol. 34 No. 8, pp. 555-561. https://doi.org/10.1108/03074350810874073