How Much Do CEO Incentives Matter?

45 Pages Posted: 19 Nov 2010

See all articles by Robert Tumarkin

Robert Tumarkin

UNSW Australia Business School, School of Banking and Finance; Financial Research Network (FIRN)

Date Written: July 11, 2010


The impact of CEO incentive compensation on firm performance is difficult to quantify because performance also affects incentives. To circumvent this problem, I form an estimate of the changes in CEO incentives caused by exogenous stock price movements using a return index for each firm’s peer group and lagged CEO holdings. For the mean incentive level, Tobin’s q increases by 10.0% compared to that of counterfactual firms that lack CEO incentive compensation. I also introduce an ex ante measure of the CEO’s discretion over her incentive portfolio and show that the greater this discretion the less incentives mitigate agency conflicts.

JEL Classification: G3, G30

Suggested Citation

Tumarkin, Robert, How Much Do CEO Incentives Matter? (July 11, 2010). 23rd Australasian Finance and Banking Conference 2010 Paper. Available at SSRN: or

Robert Tumarkin (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
+61 02 9385 6730 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


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