US Executive Remuneration: performance, power and providence

Abstract

To analyse CEO remuneration, this study uses possibly the largest data set ever studied on US companies listed on the NYSE and Nasdaq, with over 500,000 observations, from 2001 to 2014. Different forms of remuneration are analysed to see how CEO remuneration relates to performance, to CEO power and to providential outside effects beyond the CEO's control. A meta-production function analysis (Kim and Lau, 1995) is used, not on countries but US companies, to estimate CEOs' effects individually on productivity, and how much remuneration is related to these effects (pay-for-performance). CEO changeover and tenure effects are analysed and range of measures of CEO power are discussed, relating to Duality, Founder CEOs, Independent Directors, Lead Directors, Board Size, Board Cost and CEO Pay Slice. How these differ, across the industries defined at 4 different levels of the Global Industry Classification, is shown and how they relate to remuneration, both individually and all together, in analyses of how CEOs' power affects remuneration. CEO remuneration's relationship to pure providence is analysed, relating remuneration to various measures of economic activity, with the benefit of strong variation due to the GFC. The simplest model using GDP and the exchange rate is preferred. GDP and exchange rates are found to have symmetric effects on cash remuneration but asymmetric effects on LTI remuneration. These effects are largely independent of the CEO power effects.