Executive Compensation and Non-Financial Performance Measures: A Study of the Incentive Relevance of Mandated Non-Financial Disclosures in the U.S. Airline Industry

33 Pages Posted: 15 Jun 2002

See all articles by Dhinu Srinivasan

Dhinu Srinivasan

University of Pittsburgh - Katz Graduate School of Business

Akin Sayrak

University of Pittsburgh

Nandu J. Nagarajan

University of Texas at Arlington

Date Written: 2004

Abstract

This paper provides empirical evidence that industry-specific non-financial metrics, whose disclosure is mandated by the U.S. Department of Transportation (DOT) for the ten largest U.S. airlines, have explanatory power for top executive pay-for-performance relations beyond that provided by financial measures and other non-financial measures such as load factor and market share. Interestingly, for a subset of these airlines, we find that, over a smaller sample period, customer satisfaction, whose disclosure is not mandated, is not generally incentive-relevant, suggesting that disclosure requirements can affect the incentive relevance of non-financial measures of performance. Finally, we find that for airlines, DOT non-financial measures, unlike others such as load factor, influence top executives' compensation through the non-cash and not the cash component of compensation. Overall, our evidence improves understanding of the similarities and differences in the use of non-financial performance measures in compensation design when the disclosure of some of these metrics, but not all, is required.

Note: Previously titled "Executive Compensation and Non-financial Performance Measures: A Study of the Incentive and Value Relevance of Mandated Non-financial Disclousres in the U.S. Airlines Industry"

Keywords: Executive compensation, Incentive contracts, Pay-for-performance, Non-financial performance measures, Customer satisfaction, Airline industry

JEL Classification: G34, J33, L93, M3, M4

Suggested Citation

Srinivasan, Dhinu and Sayrak, Akin and Nagarajan, Nandu J., Executive Compensation and Non-Financial Performance Measures: A Study of the Incentive Relevance of Mandated Non-Financial Disclosures in the U.S. Airline Industry (2004). Available at SSRN: https://ssrn.com/abstract=301899 or http://dx.doi.org/10.2139/ssrn.301899

Dhinu Srinivasan (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States
412-648-1513 (Phone)
412-648-1693 (Fax)

Akin Sayrak

University of Pittsburgh ( email )

341 Mervis Hall
Katz School of Business
Pittsburgh, PA 15260
United States
412-512-5720 (Phone)
(412) 253-6005 (Fax)

Nandu J. Nagarajan

University of Texas at Arlington ( email )

415 S West St Apt no 205
Arlington, TX 76019
United States

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