Exchange Rate and Macroeconomic Fluctuations as Sources of Luck in CEO Compensation
46 Pages Posted: 18 Sep 2011
Date Written: August 8, 2011
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
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