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CEO Pay, Shareholder Returns and Accounting Profitability

Frederick Guy ()

Working Papers from Centre for Business Research, University of Cambridge

Abstract: We assess the impact on ceo pay (including salary, cash bonus, and benefits in kind) of changes in both accounting and shareholder returns in 99 british companies in the years 1972-89. After correcting for heterogeneity biases inherent in the standard specifications of the problem, we find a strong positive relationship between ceo pay and within-company changes in shareholder returns, and no statistically significant relationship between ceo pay and within-company changes in accounting returns. Differences between firms in long term average profitability do appear to have a substantial effect on ceo pay, while differences between firms in shareholder returns add nothing to the within-firm pay dynamics. These findings call into question the rationale for explicitly share-based incentive schemes.

Keywords: ceo pay; random coefficients (search for similar items in EconPapers)
JEL-codes: C23 J33 L21 (search for similar items in EconPapers)
Date: 2000-03
Note: PRO-2
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