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CEO compensation and firm performance in the insurance industry

Rafiqul Bhuyan (Department of Finance, Le Moyne College, Syracuse, New York, USA)
Deanne Butchey (Department of Finance, College of Business, Florida International University, Miami, Florida, USA)
Jerry Haar (Department of International Business, College of Business, Florida International University, Miami, Florida, USA)
Bakhtear Talukdar (Department of Finance and Business Law, College of Business and Economics, University of Wisconsin Whitewater, Whitewater, Wisconsin, USA)

Managerial Finance

ISSN: 0307-4358

Article publication date: 13 February 2020



We investigate the relationship between chief executive officer (CEO) compensation and a firm's financial performance in the insurance industry to determine CEO pay policies that are more effective in promoting specific financial corporate goals.


Considering different components of executive pay, we investigate the latter’s relationship with the corporate performance of the insurance industry using the generalized method of moments (GMM) model developed for dynamic panel estimation. Our data encompasses the periods before and after the 2008 financial crisis.


We observe that after the crisis the insurance industry experienced a major change in executives’ compensation packages. While CEOs’ compensation was primarily based on bonuses pre-crisis, the average size of the bonus was reduced to one-third of the level, stock awards and nonequity incentives were doubled and option awards increased almost 70 percent in the post-crisis period. It is also evident that the work experience of CEOs and the firm's financial performance play a significant role in determining CEO compensation. As the CEO becomes more experienced, stock awards and option awards replace cash bonus.


The paper finds supporting evidence for the agency-related problem in the insurance industry and the convergence of interest hypothesis, suggesting that a firm's market valuation rises as its managers own an increasingly large portion of the firm. To align the interest of owners with that of management, managers should be converted into owners via stock ownership. The paper addresses a topical issue regarding pay and performance and the effect of the financial crisis in the insurance industry.



Bhuyan, R., Butchey, D., Haar, J. and Talukdar, B. (2020), "CEO compensation and firm performance in the insurance industry", Managerial Finance, Vol. ahead-of-print No. ahead-of-print.



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