Exchange Rate and Macroeconomic Fluctuations as Sources of Luck in CEO Compensation

46 Pages Posted: 18 Sep 2011

See all articles by Clas Wihlborg

Clas Wihlborg

Chapman University; University West

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

Jianhua Zhang

Göteborg University - School of Business, Economics and Law

Date Written: August 8, 2011

Abstract

Exchange rate and other macroeconomic fluctuations 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 on remuneration depending on the ability of management to adjust operations. We decompose the changes in CEO-compensation to distinguish between (anticipated-and unanticipated) macroeconomic and “intrinsic” sources. Total US CEO-compensation is measured both including options awarded and options exercised. Both depend strongly on variations in macro-factors but the time patterns differ. Allowing for asymmetric effects on compensation we find that current compensation (salary bonus) has the most positive asymmetry.

Keywords: CEO Compensation, Exchange Rates, Performance, Macroeconomic Factors, Luck

JEL Classification: L14, L16, M14, M21, M52

Suggested Citation

Wihlborg, Clas and Chiu, Hsin-Hui and Oxelheim, Lars and Zhang, Jianhua, Exchange Rate and Macroeconomic Fluctuations as Sources of Luck in CEO Compensation (August 8, 2011). Midwest Finance Association 2012 Annual Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1928959 or http://dx.doi.org/10.2139/ssrn.1928959

Clas Wihlborg (Contact Author)

Chapman University ( email )

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

University West ( email )

Trollhättan, 46186
Sweden

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)

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)

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