Executive Compensation: The Trend Toward One Size Fits All

62 Pages Posted: 19 Jan 2021

See all articles by Felipe Cabezon

Felipe Cabezon

University of Southern California - Marshall School of Business

Date Written: November 9, 2020

Abstract

This paper reports the prevalence of a “one-size-fits-all” trend in the structure of executive compensation plans. The way firms distribute total compensation across different components of pay –salary, bonus, stock awards, option awards, non-equity incentives, pensions, and perquisites– is becoming more similar since 2006. In particular, 25% of the variation across firms disappeared in the last ten years. Using close votes surrounding Say-on-Pay’s implementation, I find that shareholders’ influence on management decisions causes part of this convergence. This finding is robust in both difference-in-difference and RDD estimations. Additional evidence suggests that proxy advisors play a role by pushing towards standardization. The convergence has negative economic consequences. The more similar a firm’s compensation structure becomes to the others, the higher the pay and the lower its sensitivity to the firm performance and the risk taken. Additionally, the firm innovates less –invests less in R&D and is less likely to patent– and reduces its market value.

Keywords: Corporate Governance, Executives, Shareholder, Corporate Voting, Corporate Regulation

JEL Classification: G30, G34, G38

Suggested Citation

Cabezon, Felipe, Executive Compensation: The Trend Toward One Size Fits All (November 9, 2020). Available at SSRN: https://ssrn.com/abstract=3727623 or http://dx.doi.org/10.2139/ssrn.3727623

Felipe Cabezon (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

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