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CEO compensation, IOS and the role of corporate governance

Fathi Elloumi (Fathi Elloumi is an Assistant Professor of Accounting at Athabasca University, Alberta, Canada. He received his PhD degree in business administration from the University of Quebec at Montreal, Quebec, Canada. His research interests include earnings management, compensation, supply chain management, strategic decision process, corporate governance, and the dynamics of bankruptcy and business failure.)
Jean‐Pierre Gueyié (Jean‐Pierre Gueyié is an assistant professor of finance at the University of Quebec at Montreal. He received his PhD degree in business administration from Laval University, Quebec, Canada. His research interests include banking, risk management, corporate governance, and the dynamics of bankruptcy and business failure.)

Corporate Governance

ISSN: 1472-0701

Article publication date: 1 June 2001

3723

Abstract

The empirical relationship between chief executive officer (CEO) compensation, the investment opportunity set (IOS) and corporate governance mechanisms is analyzed for a sample of 415 Canadian firms in 1997. Results indicate that firms with high IOS pay higher levels of total compensation to their CEOs. In addition, CEOs of high IOS derive a larger proportion of their compensation from performance‐contingent forms of pay such as bonuses, stock option grants and long‐term incentive plans. However, CEOs with weak boards of directors are compensated more than CEOs with powerful boards. Contrary to our expectation, we find that in high IOS firms with weak boards of directors, CEOs seek to have higher proportions of contingent forms of pay in their compensation. An implication of this result is that contingent compensation practices may be a more value‐enhancing form of remuneration for CEOs.

Keywords

Citation

Elloumi, F. and Gueyié, J. (2001), "CEO compensation, IOS and the role of corporate governance", Corporate Governance, Vol. 1 No. 2, pp. 23-33. https://doi.org/10.1108/EUM0000000005487

Publisher

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MCB UP Ltd

Copyright © 2001, MCB UP Limited

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