Watch Your Basket - To Determine CEO Compensation
36 Pages Posted: 8 Aug 2017 Last revised: 18 Apr 2018
Date Written: October 10, 2017
CEOs are paid more if they outperform other firms in their blockholders' portfolios. For every percentage point by which their own firm's return exceeds the return of the largest blockholder's basket of investments in a year, their compensation increases by over $9,800. Once we benchmark to this portfolio, industry returns and own firm returns are of little importance. When the firm is a larger portion of the blockholder's portfolio and when the blockholder is experienced, the reward for outperforming the blockholder's portfolio is greater. Our results are robust to alternate industry classifications and definitions of blockholders.
Keywords: CEO Compensation, Blockholders, Benchmarking
JEL Classification: G32, G34, J33, M12
Suggested Citation: Suggested Citation