Performance for Pay? The Relation Between CEO Incentive Compensation and Future Stock Price Performance
52 Pages Posted: 19 Mar 2010 Last revised: 2 Dec 2016
Date Written: November 1, 2016
Measures of Chief Executive Officer (CEO) excess compensation are negatively related to future firm returns and operating performance. The effect is stronger for more overconfident CEOs at firms with weaker corporate governance. Overconfident CEOs receiving high excess pay undertake activities such as overinvestment and value-destroying mergers and acquisitions that lead to shareholder wealth losses.
Keywords: Executive compensation, Pay-performance relationship
JEL Classification: G34, J33
Suggested Citation: Suggested Citation