CEO Incentives: Measurement, Determinants, and Impact on Performance

Röell, Ailsa, Lin Peng and Hongfei Tang

No 11417, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We examine, both theoretically and empirically, the determinants and performance impact of three measures of CEO incentives: pay-performance elasticity (PPE), semi-elasticity (PPSE), and sensitivity (PPS). Larger, more R&D intensive, and low-idiosyncratic risk firms have higher PPE and PPSE, resolving puzzling prior empirical findings based on PPS. Performance is generally hump-shaped in PPE and PPSE; shortfalls relative to predicted levels appear particularly detrimental to firm performance, suggesting that the average firm’s incentives are at the low end of the optimal range. Overall, the results obtained with the PPE and PPSE measures accord better with economic intuition than those obtained using PPS.

Keywords: Executive compensation; Pay-for-performance elasticity (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-cse and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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