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Pay me Right: Reference Values and Executive Compensation
Author(s) -
Gregorič Aleksandra,
Polanec Sašo,
Slapničar Sergeja
Publication year - 2010
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2010.00558.x
Subject(s) - executive compensation , compensation (psychology) , corporate governance , accounting , business , microeconomics , economics , psychology , finance , social psychology
This paper examines the importance of reference values for executive compensation contracts. We rely on a quasi‐experimental setting (the adoption of pay guidelines), and a well‐defined measure of individual‐specific reference values to provide evidence on how a change in CEO reference compensation leads to subsequent changes of actual pay. We find that executive compensation adjusts gradually towards the new reference values, and that the speed of the adjustment depends on the corporate governance characteristics: the firm ownership structure, the role of the State and of the employees in the firm decision making. These results provide empirical support for theoretical models of bargaining that take into account reference values .