Executive Compensation and Macroeconomic Fluctuations

MARKETS AND COMPENSATION FOR EXECUTIVES IN EUROPE, Oxelheim, L. and C. Wihlborg, eds., Bingley: Emerald Publishing, 2008

IFN Working Paper No. 746

37 Pages Posted: 22 Apr 2008 Last revised: 30 Jun 2020

See all articles by Lars Oxelheim

Lars Oxelheim

Research Institute of Industrial Economics (IFN); University of Agder; Knut Wicksell Center for Financial Studies, Lund University

Clas Wihlborg

Chapman University; University West

Jianhua Zhang

University of Gothenburg - School of Business, Economics and Law

Abstract

Macroeconomic fluctuations affect corporations' performance through demand and cost conditions. Incentive effects of performance-based compensation schemes for management may be weakened or biased by macroeconomic influences if management is unable to forecast macroeconomic fluctuations or unable to adjust operations in response to changes in macroeconomic conditions. In this paper we analyze the impact of macroeconomic, industry and firm-specific factors on salaries and bonus of CEOs in 131 Swedish corporations during the period 2001-2006. A distinction is made between anticipated and unanticipated macroeconomic fluctuations. The macroeconomic influences on performance and compensation can be expected to vary from firm to firm in terms of magnitude of effects, as well as in terms of relevant macroeconomic variables. The estimates obtained in this paper refer to the average impact across the sample of firms. We find that the average Swedish CEOs' compensation is explained to a substantial extent by macroeconomic factors; less so by unanticipated factors alone.

Keywords: Executive Compensation, Macroeconomic Factors, Cash Compensation

JEL Classification: L14, L16, M14, M21, M52

Suggested Citation

Oxelheim, Lars and Wihlborg, Clas and Zhang, Jianhua, Executive Compensation and Macroeconomic Fluctuations. MARKETS AND COMPENSATION FOR EXECUTIVES IN EUROPE, Oxelheim, L. and C. Wihlborg, eds., Bingley: Emerald Publishing, 2008, IFN Working Paper No. 746, Available at SSRN: https://ssrn.com/abstract=1123549 or http://dx.doi.org/10.2139/ssrn.1123549

Lars Oxelheim (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

P.O. Box 55665
SE-10215 Stockholm
Sweden
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University of Agder ( email )

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Norway

Knut Wicksell Center for Financial Studies, Lund University ( email )

P.O.Box 7080
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Sweden
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Clas Wihlborg

Chapman University ( email )

333 N. Glassell
Orange, CA 92866
United States
+17147447630 (Phone)

University West ( email )

Trollhättan, 46186
Sweden

Jianhua Zhang

University of Gothenburg - School of Business, Economics and Law ( email )

Box 640
SE 405 30 Goeteborg
Sweden
+46-(0)31-7732689 (Phone)
+46-(0)31-7734154 (Fax)

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