You Can Pay Me Now and You Can Pay Me Later: The Dynamic Response of Executive Compensation to Firm Performance

John F Boschen and Kimberly J Smith

The Journal of Business, 1995, vol. 68, issue 4, 577-608

Abstract: Empirical studies estimating the impact of firm performance on executive pay have primarily concentrated on the short-run response. In this study, the authors present estimates of the complete dynamic response of CEO pay to firm performance. They find that the cumulative response of pay to performance is roughly ten times that of the contemporaneous response, a onetime innovation in firm performance typically raises pay over the next 4-5 years, and compensation arrangements have shifted toward greater performance sensitivity and longer-term pay arrangements over the four decades studied. Copyright 1995 by University of Chicago Press.

Date: 1995
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