Pay Me Right: Reference Values and Executive Compensation
Katholieke Universiteit Leuven, LICOS Discussion Paper No. 220/2008
26 Pages Posted: 18 Mar 2009
Date Written: November 1, 2008
This paper studies the impact of external reference values on managerial compensation contracts. We consider the effect of adoption of non-binding pay norms on actual remuneration behavior using a unique country example. We find that introduction of pay norms changed the reference values for CEOs and led to adjustment of executive compensation towards new equilibrium. These pay norms affected pay in firms with actual compensation below and above reference values. Further we find that reference values changed compensation in all types of firms, although executive compensation increased more in firms with more dispersed ownership and control. These results confirm the importance of reference values in bargaining process between owners and managers.
Keywords: Executive compensation, bargaining, reference values, ownership structure
JEL Classification: G30, G34
Suggested Citation: Suggested Citation