Executive compensation: Performance for pay.

摘要

This dissertation is an empirical study, (involving 509 companies in 21 industries from 1986–1995), that examines pay as a retention instrument and as a motivator. The internal company view is that pay is a retention device. Regression analysis and Survival analysis with censored statistics was used to show that there was more pay with Tenure, even though experience did not result in superior company performance, and there is higher pay for positions where the job life expectancy is low. Regression with Life Data was used to identify the elements affecting job life expectancy. Average industry return, being founder and chairman, and having a sizable stake (stock) in the firm improves survivability.; The external company view (principals' view) is that pay is a motivator that rewards the agent for improving the wealth of the principals. Academic research has demonstrated that there is “pay for performance” insofar as performance is captured by accounting variables. Paying for accounting performance doesn't necessarily ensure capital market performance for pay. The link between accounting performance and shareholder return is analyzed. Financial goals that are best aligned with shareholder return, as suggested by regression analysis, are compared to those suggested by decision trees constructed with the CART algorithm. Since the latter method incorporates conditional events, it produced superior results.; It is important to the integrity of a regression equation that it be directionally correct, and that it is the independent variables that “predict” the value of the dependent variable. Following these principles, the causal relationships between pay, accounting performance, and capital market performance were examined using Granger causality. The results suggest that the pay elements predict the financial indicators and not the other way around; that Premium Return to the shareholders “causes” the level of Salary, Bonus, and the increase in Salary and Bonus; and that Premium Return to the shareholders “causes” Financial Indicators. This last result supports the efficient capital market theory that the market anticipates the release of the accounting numbers and reacts only if the results are a surprise.