CEO compensation, firm performance and operational characteristics

Abstract

Purpose

This paper aims to examine the impact on executive compensation (both cash and in total) of regulation, size of sales and number of employees, and nature of the business in terms of new‐economy vs traditional.

Design/methodology/approach

This study uses the ExecuComp database as the information source. Regression analysis is used to test hypotheses that focus on firm size in terms of sales, market and accounting returns, and the number of firm employees. The sample consists of 455 US firms from 25 industries, and covers the period 1996‐2002.

Findings

Firm size and market‐based return are the most significant explanatory variables in affecting executive compensation. More limited support was found for accounting‐based returns, as was changes in the number of employees.

Research limitations/implications

Findings of this study may be limited by the temporal context. Around the turn of this century may have been an unusual time in America's corporate history. The economic outlook of the late 1990s may be fundamentally different from the one facing firms now or in the future. Consequently, future research will be needed to determine to what extent these results can be generalized to periods of different economic prospects.

Originality/value

This study examines the impact of firms' operational characteristic on Chief Executive Officer (CEO) compensation.

Citation

Nourayi, M.M. and Daroca, F.P. (2008), "CEO compensation, firm performance and operational characteristics", Managerial Finance, Vol. 34 No. 8, pp. 562-584. https://doi.org/10.1108/03074350810874082