Computer Industry Executives: An Analysis of the New Barons' Compensation

Abstract:     
In this paper we study the pay-for-performance relation for top executives in the computer industry and compare these findings with a large sample of firms from other manufacturing and service industries. For both CEO and the remaining four most highly compensated executives of the firm, we examine whether superior performance is rewarded by higher levels of compensation and whether the form and level of compensation affects future performance. We find cash-based compensation, such as salary and bonus, is influenced by performance. Depending on the growth orientation of the company, pay is tied either to accounting measures of performance or to stock return. Such a dichotomy also prevails with respect to the degree of managerial ownership separation. In contrast, stock-based compensation such as options and restricted stock awards is not reflective of performance, irrespective of growth orientation or ownership structure. Two other interesting findings are that the prevalent use of stock-based compensation in the computer industry does not appear to be the result of computer firms being "cash starved." In addition, stock-based compensation does not appear to lead to larger executive stock ownership, as is widely believed.

JEL Classification: G30, J33, L63, L86, M40, M46

working papers series