Executive Compensation in the Information Technology Industry

Mark C. Anderson (), Rajiv D. Banker () and Sury Ravindran ()
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Mark C. Anderson: School of Management, The University of Texas at Dallas, Richardson, Texas 75083
Rajiv D. Banker: School of Management, The University of Texas at Dallas, Richardson, Texas 75083
Sury Ravindran: School of Management, The University of Texas at Dallas, Richardson, Texas 75083

Management Science, 2000, vol. 46, issue 4, 530-547

Abstract: An innovative business practice attributed to the information technology (IT) industry is the aggressive use of employee stock options to compensate executives and other employees. In this study, we investigate whether the greater use of stock options in the IT industry can be explained on the basis of general economic relationships that apply to firms in all industries. To examine differences in compensating top executives, we estimate a system of simultaneous equations that is designed to accommodate interconnections between performance, the level of compensation, and the mix of compensation components. We document that the shares of both bonus and option pay increase with performance and that the pay level and the extent of incentive pay positively affect firm performance. We identify economic factors that may influence the use of options and show that there are significant differences in these factors between IT and other industries. We find that, while much of the greater use of options by IT firms is explained by the economic factors, significant residual differences remain. We also find that, when performance and other factors are considered, the level of executive pay in the IT industry is not higher than in other industries.

Keywords: information technology industry; executive compensation; stock options; pay for performance (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (49)

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