The effect of price targets on the composition of CEO pay

Giuliano Bianchi

Applied Economics, 2016, vol. 48, issue 45, 4299-4311

Abstract: This article analyzes the impact of price targets from the IBES Detail Price History Target database on CEO compensation retained from Execucomp. The two databases are merged at fiscal year frequency and an OLS regression with fixed effect is used to analyze the impact of price target on CEO compensation. The analysis reveals that analysts’ price targets affect top executives’ compensation: when analysts predict a growth in the share price for a company, the compensation package tilts towards stock options, when analysts forecast a drop in the share price, the compensation package tilts towards cash-based compensation and restricted stocks. I argue that the result is more aligned with the managerial power model of compensation (which assumes the board of directors maximizes managers’ compensation) than with the arm’s length bargaining model (that states that managers’ compensation is set to maximize shareholders’ profit).

Date: 2016
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DOI: 10.1080/00036846.2016.1156234

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