CEO Deal-Making Activities and Compensation
55 Pages Posted: 24 Mar 2008 Last revised: 24 Dec 2013
Date Written: December 3, 2013
Using transactions generally overlooked in the compensation literature — joint ventures, strategic alliances, SEOs, and spinoffs — we find that, beyond compensation for increases in firm size or complexity, CEOs are rewarded for their deal-making activities. Boards pay CEOs for the core-motivation of the deal, but also for deal volume. We find that compensating for volume rather than core value creation occurs under weak board monitoring and that in deal-making firms, neither CEO-turnover nor pay-for-performance responds to underperformance. We introduce an input monitoring explanation for these results: boards compensate for deal volume because of their inability to perfectly monitor outputs.
Keywords: Executive Pay, Agency Problems, Joint Ventures, SEOs, Spinoffs, Strategic Alliances
JEL Classification: G30, G34, K22
Suggested Citation: Suggested Citation