Macroeconomic Fluctuations as Sources of Luck in CEO Compensation

29 Pages Posted: 24 Aug 2010 Last revised: 13 Nov 2013

See all articles by Hsin-Hui Chiu

Hsin-Hui Chiu

California State University, Northridge

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

Göteborg University - School of Business, Economics and Law

Date Written: November 10, 2013

Abstract

Macroeconomic fluctuations such as interest rate and exchange rate can be considered sources of good or bad “luck” for corporate performance. Incentive effects of performance-based compensation for management may be weakened or biased by macroeconomic influences depending on the ability of management to adjust for operations. We decompose the impacts on CEO compensation to distinguish between macroeconomic (anticipated and unanticipated) and “intrinsic” sources. Total CEO compensation is measured by including options awarded or options exercised. Both measures depend strongly on variations in macro factors but the time patterns differ. The macroeconomic factors increased total awarded compensation as much as 30 percent in one period and reduced awarded compensation 14 percent in another period. The effect on realized compensation ranges from positive 44 percent to negative 16 percent. The average annual absolute effect lies within the range of 11 to 16 percent.

Keywords: Macroeconomic, Luck, Performance, CEO Compensation

JEL Classification: G30, G32, J33, E00, L14, L16, M21, M52

Suggested Citation

Chiu, Hsin-Hui and Oxelheim, Lars and Wihlborg, Clas and Zhang, Jianhua, Macroeconomic Fluctuations as Sources of Luck in CEO Compensation (November 10, 2013). 23rd Australasian Finance and Banking Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1663896 or http://dx.doi.org/10.2139/ssrn.1663896

Hsin-Hui Chiu

California State University, Northridge ( email )

18111 Nordoff Street
Northridge, CA 91330
United States

Lars Oxelheim

Research Institute of Industrial Economics (IFN) ( email )

P.O. Box 55665
SE-10215 Stockholm
Sweden
+46 8 665 4527 (Phone)
+46 8 665 4599 (Fax)

University of Agder ( email )

Serviceboks 422
N-4604 Kristiansand, VEST AGDER 4604
Norway

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

P.O.Box 7080
S-220 07 Lund
Sweden
+46462228744 (Phone)

Clas Wihlborg (Contact Author)

Chapman University ( email )

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

University West ( email )

Trollhättan, 46186
Sweden

Jianhua Zhang

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

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

Register to save articles to
your library

Register

Paper statistics

Downloads
18
Abstract Views
779
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information