Stakeholder Pressure and the Structure of Executive Compensation

54 Pages Posted: 14 Nov 1997

See all articles by Marilyn F. Johnson

Marilyn F. Johnson

Michigan State University - Department of Accounting & Information Systems

Susan L. Porter

University of Virginia - McIntire School of Commerce

Margaret B. Shackell

Ithaca College

Date Written: May 1997

Abstract

We examine whether the recent public outcry over executive compensation has had an impact on the level of executive compensation and/or the sensitivity of cash compensation to firm performance. Cross-sectional analyses for a sample of 186 firms show that post-1993 compensation levels have risen despite increasing stakeholder pressure. Tests based on firm- specific, time series analyses indicate a post-1993 increase in the sensitivity of cash compensation to firm performance that cannot be completely explained by a rising stock market. In addition to examining overall changes in the structure of executive compensation, we also examine the impact of four specific sources of stakeholder pressure. We find no evidence that the receipt of a shareholder proposal on executive compensation or the redesign of short- term and long-term incentive plans in response to the $1 million pay cap is followed by significant changes in compensation levels or cash compensation performance sensitivities. However, our evidence does indicate that following negative financial press coverage of a firm?s executive compensation policies, there is both a smaller subsequent increase in total compensation and a larger subsequent increase in the sensitivity of cash compensation to firm performance than is experienced by firms that were not singled out by the media. Finally, we find that the targeting of a firm by institutional investors with concerns about the firm?s performance is associated with subsequent declines in both total compensation and cash compensation performance sensitivities.

JEL Classification: G38, J33, K34

Suggested Citation

Johnson, Marilyn F. and Porter, Susan Lynne and Shackell, Margaret B., Stakeholder Pressure and the Structure of Executive Compensation (May 1997). Available at SSRN: https://ssrn.com/abstract=41780 or http://dx.doi.org/10.2139/ssrn.41780

Marilyn F. Johnson

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States
517-432-0152 (Phone)
517-432-1101 (Fax)

Susan Lynne Porter

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434243-2961 (Phone)
434-924-7074 (Fax)

Margaret B. Shackell (Contact Author)

Ithaca College ( email )

United States
6072741314 (Phone)

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