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Does executive compensation reflect corporate productivity?
Author(s) -
Choi Yoon K.
Publication year - 2020
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12437
Subject(s) - incentive , productivity , executive compensation , compensation (psychology) , business , economics , relation (database) , monetary economics , industrial organization , microeconomics , macroeconomics , psychology , database , computer science , psychoanalysis
Recent literature has given attention to the effect of CEO‐specific productivity on the structure of CEO compensation. Our paper instead focuses on the effect of a different productivity factor—which we call “corporate productivity”—on CEO compensation. In particular, we show that corporate productivity affects the trade‐off between incentive and risk in a non‐monotonic fashion, which the literature has not yet recognized. Using various empirical proxies for corporate productivity, we show that our results are consistent with the non‐monotonic relation and thus contribute to the debates in the incentive‐risk trade‐off literature. Second, our findings also contribute to the internal capital market literature by exploring the relation between the structure of CEO compensation and excess value.