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You Can Pay Me Now and You Can Pay Me Later: The Dynamic Response of Executive Compensation to Firm Performance

JOURNAL OF BUSINESS, Vol 68 No 4, October 4, 1995

Posted: 25 Aug 1998  

John F. Boschen

College of William and Mary - Mason School of Business; National Bureau of Economic Research (NBER)

Kimberly J. Smith

College of William and Mary - Mason School of Business

Abstract

Empirical studies estimating the impact of firm performance on executive pay have primarily concentrated on the short-run response. In this study, we present estimates of the complete dynamic response of CEO pay to firm performance. We find that 1) the cumulative response of pay to firm performance is roughly ten times that of the contemporaneous response, 2) a one-time innovation in firm performance typically raises pay over the next four to five years, and 3) compensation arrangements have shifted toward greater performance sensitivity and longer-term pay arrangements over the four decades studied.

JEL Classification: J33

Suggested Citation

Boschen, John F. and Smith, Kimberly J., You Can Pay Me Now and You Can Pay Me Later: The Dynamic Response of Executive Compensation to Firm Performance. JOURNAL OF BUSINESS, Vol 68 No 4, October 4, 1995. Available at SSRN: https://ssrn.com/abstract=6550

John F. Boschen (Contact Author)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

College of William and Mary - Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States
804-221-2886 (Phone)
804-221-2937 (Fax)

Kimberly J. Smith

College of William and Mary - Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States
804-221-2867 (Phone)
804-221-2937 (Fax)

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