Factor analysis of executive compensation determinants: survey evidence from executives and non‐executive investors

Abstract

Purpose

This paper seeks to examine the differences between executives and investors in the perception of determinant factors in executive compensation.

Design/methodology/approach

From a survey instrument comprised of archival executive compensation determinant items, a factor analysis is performed to examine the construct determinant perceptions unique to executives and non‐executive investors.

Findings

The authors find differences in factors between executives and non‐executive investors in a manner expected by agency theory. Non‐executive investors place greater weight on factors related to performance and less weight on human capital factors, while executive investors place greater weight on human capital factors in determining executive compensation.

Research limitations/implications

This study is limited in that the sample may not be representative of the population of chief executive officers or shareholders in the USA.

Practical implications

Differing factors suggest that there is a misalignment of measures desired to be the foundation of executive compensation. The differing measures used to potentially motivate agents (executives) by principals (investors) results in an agency cost.

Originality/value

The authors have documented a difference between executives and investors in factors desired to determine executive compensation.

Citation

Fleming, A.S. and Christian Schaupp, L. (2012), "Factor analysis of executive compensation determinants: survey evidence from executives and non‐executive investors", Corporate Governance, Vol. 12 No. 1, pp. 16-41. https://doi.org/10.1108/14720701211191319