Does Executive Compensation Reflect Corporate Productivity?

22 Pages Posted: 30 Sep 2020

See all articles by Yoon K. Choi

Yoon K. Choi

University of Central Florida - College of Business Administration - Department of Finance

Date Written: July-August 2020

Abstract

Recent literature has given attention to the effect of CEO‐specific productivity on the structure of CEO compensation. Our paper instead focuses on the effect of a different productivity factor—which we call “corporate productivity”—on CEO compensation. In particular, we show that corporate productivity affects the trade‐off between incentive and risk in a non‐monotonic fashion, which the literature has not yet recognized. Using various empirical proxies for corporate productivity, we show that our results are consistent with the non‐monotonic relation and thus contribute to the debates in the incentive‐risk trade‐off literature. Second, our findings also contribute to the internal capital market literature by exploring the relation between the structure of CEO compensation and excess value.

Keywords: CEO compensation, corporate productivity, excess value, incentive‐risk trade‐offs

JEL Classification: G30, G32, J33

Suggested Citation

Choi, Yoon K., Does Executive Compensation Reflect Corporate Productivity? (July-August 2020). Journal of Business Finance & Accounting, Vol. 47, Issue 7-8, pp. 1012-1033, 2020, Available at SSRN: https://ssrn.com/abstract=3700035 or http://dx.doi.org/10.1111/jbfa.12437

Yoon K. Choi (Contact Author)

University of Central Florida - College of Business Administration - Department of Finance ( email )

PO Box 161400
Orlando, FL 32816
United States
(407) 823-5023 (Phone)

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