The Shielding of CEO Compensation from the Effects of Strategic Expenditures

Posted: 18 Feb 2002

See all articles by Augustine Duru

Augustine Duru

American University - Kogod School of Business

Raghavan J. Iyengar

North Carolina Central University - School of Business

Alex Thevaranjan

Syracuse University - School of Management

Abstract

This study investigates whether and why compensation committees shield CEO compensation from income-decreasing effects of strategic expenditures. We document that firms do shield recurring expenditures such as research and development and advertising expenditures. We also find that firms shield research and development expenditures more than advertising expenditures. Our results are consistent with prior findings that suggest that compensation committees shield CEOs from non-routine transactions such as restructuring charges and extraordinary losses. Using a two-task principal-agent framework, we show that such shielding improves the efficiency of the contract by making the shielded income measure more congruent with the principal's objectives.

JEL Classification: J33, G34, M41, F23

Suggested Citation

Duru, Augustine and Iyengar, Raghavan J. and Thevaranjan, Alex, The Shielding of CEO Compensation from the Effects of Strategic Expenditures. Available at SSRN: https://ssrn.com/abstract=298654

Augustine Duru (Contact Author)

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
202-885-1937 (Phone)
202-885-1992 (Fax)

Raghavan J. Iyengar

North Carolina Central University - School of Business ( email )

1801 Fayetteville Road
Durham, NC 27707
United States
919-530-7378 (Phone)

Alex Thevaranjan

Syracuse University - School of Management ( email )

Department of Accounting
900 S. Crouse Avenue
Syracuse, NY 13244-2130
United States
315-443-3355 (Phone)
315-443-5457 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,736
PlumX Metrics