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An Empirical Investigation of the Role of Subjective Performance Assessments Versus Objective Performance Indicators as Determinants of CEO Compensation

Management Research

ISSN: 1536-5433

Article publication date: 1 April 2008

Abstract

The empirical support for agency theory explanations for the great variance in CEO pay has been equivocal. Drawing from the performance appraisal literature, we hypothesize that boards of directors incorporate human judgment into the evaluation and reward of CEO performance in order to balance managerial risk with agency costs. We test Baysinger and Hoskisson’s (1990) proposition that insider‐dominated corporate boards rely on subjective performance evaluation to reward the CEO, and we argue that R&D intensity influences this relationship. Using a sample of Fortune firms, findings support our contention that human judgment is important in evaluating and rewarding CEO performance.

Keywords

Citation

Caranikas‐Walker, F., Goel, S., Gómez‐Mejía, L.R., Cardy, R.L. and Grabke Rundell, A. (2008), "An Empirical Investigation of the Role of Subjective Performance Assessments Versus Objective Performance Indicators as Determinants of CEO Compensation", Management Research, Vol. 6 No. 1, pp. 7-25. https://doi.org/10.2753/JMR1536-5433060101

Publisher

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Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited