CEO Compensation: Evidence From the Field


Speaker


Abstract

We survey directors and investors on the objectives, constraints, and determinants of CEO pay. 67% of directors would sacrifice shareholder value to avoid controversy on CEO pay, implying they face significant constraints other than participation and incentive compatibility. These constraints lead to lower pay levels and more one-size-fits-all structures. Shareholders are the main source of constraints, suggesting that directors and investors disagree on how to maximize shareholder value. Both directors and investors believe intrinsic motivation and reputation to be stronger motivators than incentive pay. Directors, however, also emphasize the importance of fulfilling CEOs’ expectations of a fair reward for performance, and fear that rewards that fall short demotivate. CEOs’ expectations are believed to be determined by peer CEO pay, CEOs’ assessment of their own performance, and shareholder returns. The need for ex-post performance recognition explains why flow pay responds to recent performance, even though CEOs have substantial equity incentives. Fairness considerations also explain why CEO pay is affected by external risks, in contrast to optimal risk-sharing.

Zoom link: https://eur-nl.zoom.us/j/95573398228?pwd=TU9jQ1lsWDhnbTFVZ1BPdzlhdVhOQT09

Meeting ID: 955 7339 8228