Excess pay and deficient performance

Mary Ellen Carter, Lei Li, Alan J. Marcus and Hassan Tehranian

Review of Financial Economics, 2016, vol. 30, issue C, 1-10

Abstract: We investigate the link between abnormal CEO compensation and firm performance, asking whether high unexplained compensation relative to several benchmarks is a sign of hard-to-measure but desirable executive attributes or is instead a symptom of unsolved agency problems. We find that abnormally high CEO pay predicts worse future firm performance. Abnormally high compensation that is performance-contingent is a less ominous signal about the future success of the firm. But abnormal levels of even performance-contingent compensation predict worse future performance. We conclude that abnormally high CEO pay can be useful as an independent indicator of agency problems.

Keywords: Agency problems; Governance; Executive compensation; Abnormal pay (search for similar items in EconPapers)
JEL-codes: G30 G34 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:revfin:v:30:y:2016:i:c:p:1-10

DOI: 10.1016/j.rfe.2015.08.003

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