Relationship of the Managerial Compensation Package with Managerial Equity Holdings and Firm Characteristics
Posted: 5 Apr 2004
We study the relationship of the portions of salary, bonus, option and restricted stock grants, as a percentage of the total value of the CEO pay package, with total compensation, managerial equity holdings, firm equity risk, and several other variables. Using proportions captures important interactions among the components; a change in one affects the portions of the other three. We test hypotheses to determine if compensation contracts are designed primarily to control risk faced by the manager. We find that the portions of salary and bonuses are positively related to the value of managers' equity positions and their proportional holdings of firm shares, and negatively correlated with the size of the compensation package and firm equity risk. The results for option and restricted grants are generally the opposite. With respect to these major finds there is little difference in the structure of compensation between firms with positive and negative earnings.
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