The Ruse of a One-Dollar CEO Salary

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

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

47 Pages Posted: 18 Mar 2010 Last revised: 17 Jan 2014

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 following the adoptions of $1 salaries. The underperformance is especially pronounced for firms that adopt $1 CEO salaries for reasons other than restructuring, experiencing about 30% lower stock returns during the three-year post-adoption period. Meanwhile, CEOs in these firms are better off since they get more total compensation and larger equity grants in the second year following adoptions than the loss in pay in the first year.

Keywords: CEO compensation, CEO characteristics

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). Charles A. Dice Center Working Paper No. 2011-7; Fisher College of Business Working Paper No. 2011-03-007. 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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