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EXECUTIVE COMPENSATION STRUCTURE AND CORPORATE GOVERNANCE CHOICES
Author(s) -
Harvey Keith D.,
Shrieves Ronald E.
Publication year - 2001
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.2001.tb00827.x
Subject(s) - incentive , executive compensation , corporate governance , leverage (statistics) , compensation (psychology) , stock options , business , risk aversion (psychology) , stock (firearms) , microeconomics , accounting , finance , economics , financial economics , expected utility hypothesis , psychology , mechanical engineering , machine learning , computer science , psychoanalysis , engineering
Using data that reflect the significant growth in incentive compensation during the last decade, we extend research in this area by specifying a more complete model that addresses both corporate governance and risk‐sharing factors that theory suggests should influence compensation policy. We find that the extent of incentive compensation is systematically related to other features of corporate governance, as well as to factors affecting managerial risk aversion. The results support the following conclusions: (a) the presence of outside directors and blockholders facilitates the use of incentive compensation, (b) incentive compensation is inversely related to use of leverage, and (c) the incentive pay component of compensation is lower for CEOs near or at retirement age and is decreasing in the percentage of firm stock already owned by the CEO. JEL classification : G34