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Determinates of Executive Compensation: A Hierarchical Linear Modeling Approach

Owen P. Hall and Kenneth Ko
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Owen P. Hall: Graziadio School of Business and Management, Pepperdine University, Malibu, CA, USA
Kenneth Ko: Graziadio School of Business and Management, Pepperdine University, Malibu, CA, USA

International Journal of Knowledge-Based Organizations (IJKBO), 2014, vol. 4, issue 2, 53-63

Abstract: Executive compensation continues to grow at a time when the rest of America is hurting. Why is this so? Many business pundits believe that there is a total disconnect between executive compensation and company performance. The purpose of this paper is to illustrate how hierarchical modeling can be used to better understand the relationship between executive compensation and organizational efficacy. An analysis of S&P1500 firms for 2004 was performed using a two level hierarchical design. The results show that a number of manager and firm characteristics affect total compensation including executive age, revenues and Tobin's Q. These results can be used by compensation committees to better align executive pay with firm performance and prevailing social norms.

Date: 2014
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