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The Ruse of a One-Dollar CEO Salary

Fisher College of Business Working Paper No. 2011-03-007

Charles A. Dice Center Working Paper No. 2011-7

52 Pages Posted: 18 Mar 2010 Last revised: 12 Aug 2017

Gilberto R. Loureiro

University of Minho - School of Economics and Management

Anil K. Makhija

Ohio State University (OSU) - Department of Finance

Dan Zhang

BI Norwegian Business School

Date Written: January 10, 2014

Abstract

We study the motives and impact of $1 CEO salaries on firm performance and CEO compensation. We find that on average $1 CEO firms earn lower stock market returns relative to their peers after the adoption of $1 salaries. The underperformance is especially pronounced for firms that adopt $1 CEO salaries for reasons other than restructuring and firms with entrenched or overconfident CEOs. Meanwhile, CEOs in these firms are not hurt since they get higher salary and bonus and gain more from stock holdings after the adoption of $1 salary. On the other hand, we find that CEOs of restructuring firms are granted fewer restricted stocks and options, earning overall significantly lower total compensation than their peers.

Keywords: CEO compensation, CEO characteristics, firm performance, restructuring, entrenched CEOs

JEL Classification: G30, G32, G34

Suggested Citation

Loureiro, Gilberto R. and Makhija, Anil K. and Zhang, Dan, The Ruse of a One-Dollar CEO Salary (January 10, 2014). Fisher College of Business Working Paper No. 2011-03-007; Charles A. Dice Center Working Paper No. 2011-7. Available at SSRN: https://ssrn.com/abstract=1571823 or http://dx.doi.org/10.2139/ssrn.1571823

Gilberto R. Loureiro

University of Minho - School of Economics and Management ( email )

Campus Gualtar
Braga, 4710-057
Portugal
+351-253-605553 (Phone)
+351-253-601380 (Fax)

Anil K. Makhija (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-1899 (Phone)

Dan Zhang

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

HOME PAGE: http://www.bi.edu/research/employees/?ansattid=A1210112

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