Watch Your Basket - To Determine CEO Compensation

36 Pages Posted: 8 Aug 2017 Last revised: 18 Apr 2018

See all articles by Neal Galpin

Neal Galpin

Monash University - Department of Banking and Finance

Hae Won (Henny) Jung

University of Melbourne - Department of Finance; Financial Research Network (FIRN)

Lyndon Moore

University of Melbourne

Ekaterina Volkova

University of Melbourne - Faculty of Business and Economics

Date Written: October 10, 2017

Abstract

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

Galpin, Neal E. and Jung, Hae Won (Henny) and Moore, Lyndon and Volkova, Ekaterina, Watch Your Basket - To Determine CEO Compensation (October 10, 2017). Available at SSRN: https://ssrn.com/abstract=3014572 or http://dx.doi.org/10.2139/ssrn.3014572

Neal E. Galpin

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Hae Won (Henny) Jung (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia
+61 3 9035 8641 (Phone)

Financial Research Network (FIRN)

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

Lyndon Moore

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Ekaterina Volkova

University of Melbourne - Faculty of Business and Economics ( email )

Victoria, 3010
Australia

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