Watch your basket - to determine CEO compensation

Neal Galpin, Hae Won (Henny) Jung, Lyndon Moore, Ekaterina Volkova

Research output: Contribution to journalArticleResearchpeer-review

Abstract

CEOs (chief executive officers) are paid more if they outperform other firms in their blockholders’ portfolios. For every percentage point by which their own firm's return exceeds the return of the largest blockholder's basket of investments in a year, their compensation increases by over $9,800. Once we benchmark to this portfolio, industry returns and own firm returns are of little importance. When the firm is a larger portion of the blockholder's portfolio and when the blockholder is experienced, the reward for outperforming the blockholder's portfolio is greater. Our results are robust to alternate industry classifications and definitions of blockholders.

Original languageEnglish
Pages (from-to)945-971
Number of pages27
JournalFinancial Management
Volume48
Issue number3
DOIs
Publication statusPublished - 2019

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