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Tenure and CEO Pay

Martijn Cremers

University of Notre Dame

Darius Palia

Rutgers Business School

June 18, 2010

This paper studies how the CEO pay level and pay-performance sensitivity vary with her tenure in the firm. Predictions of four theories are considered: entrenchment, learning, career concerns and dynamic contracting hypotheses. We document a positive association between tenure and CEO pay levels, and an analogous positive relation between tenure and the CEO’s pay-performance sensitivity. The firm’s information environment has a weak impact on the tenure-pay relation. We also find no significant differences in the tenure-pay relation for CEOs hired from inside versus outside the firm. Firms with higher CEO Pay Slice or Gindex seem to have a higher tenure-pay level association when compared to firms with lower CPS or Gindex. No such effect is found for the CEO’s pay-performance sensitivity. Our results are generally most consistent with the career concerns and dynamic contracting hypotheses.

Number of Pages in PDF File: 42

Keywords: executive compensation, tenure, entrenchment, career concerns, learning, dynamic contracting

JEL Classification: G30, G34

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Date posted: November 29, 2011  

Suggested Citation

Cremers, Martijn and Palia, Darius, Tenure and CEO Pay (June 18, 2010). Available at SSRN: http://ssrn.com/abstract=1626950 or http://dx.doi.org/10.2139/ssrn.1626950

Contact Information

K. J. Martijn Cremers (Contact Author)
University of Notre Dame ( email )
P.O. Box 399
Notre Dame, IN 46556-0399
United States
Darius Palia
Rutgers Business School ( email )
111 Washington Street
MEC 134
Newark, NJ 07102
United States
973-353-5981 (Phone)
973-353-1233 (Fax)
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References:  64
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