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Executive compensation and the performance of the firm
Author(s) -
Lewellen Wilbur,
Loderer Claudio,
Martin Kenneth,
Blum Gerald
Publication year - 1992
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090130108
Subject(s) - profitability index , executive compensation , compensation (psychology) , business , sample (material) , agency cost , agency (philosophy) , stock (firearms) , principal–agent problem , stock options , accounting , monetary economics , industrial organization , economics , finance , corporate governance , shareholder , engineering , philosophy , chemistry , chromatography , epistemology , psychoanalysis , mechanical engineering , psychology
A sample of large industrial corporations is examined to determine whether there is a relationship between the levels of compensation received by the senior executives of those firms and the firms' economic performances. We find consistent evidence of such a relationship, with differences across firms in the total compensation of their three highest‐paid officers being positively related to differences in both the common stock returns and operating profitability of the firms. The implication is that compensation packages are designed to reduce agency costs.