Is CEO Pay in U.S. Public Firms Efficient? New Evidence from Private Firms
Nanyang Technological University
University of Utah - Department of Finance
University of British Columbia - Sauder School of Business; China Academy of Financial Research (CAFR)
October 29, 2012
Employing public and private firm CEO pay data made available through mandated SEC disclosures over the period 1999 to 2008, we first show that after controlling for firm and CEO characteristics, public firm CEOs are paid modestly more than private firm CEOs, with a pay premium of about 20%, and that public firm CEOs are given more on-going equity incentives. We then show that this public firm pay premium becomes economically small after adjusting for the risk premium associated with equity-based pay, or after accounting for differences in liquidity, dividend income, and CEO turnover between public and private firms. Finally, we show that both public and private firm CEO annual compensation is positively and significantly related to firm accounting performance, and that the pay-performance link is much stronger in public firms. Taken together, we conclude that U.S. public firm CEOs are paid efficiently.
Number of Pages in PDF File: 64
Keywords: CEO annual compensation, equity incentives, pay structure, pay-performance sensitivity, private firms, public firms
JEL Classification: G34working papers series
Date posted: April 30, 2012 ; Last revised: October 30, 2012
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