CEO's Salary, Bonus, and Long-Term Term Paper

Pages: 9 (2423 words)  ·  Style: APA  ·  Bibliography Sources: 20  ·  File: .docx  ·  Level: College Senior  ·  Topic: Leadership

Second, CEO compensation tends to be highly persistent over time and remuneration and firm performance typically are jointly determined.


Hypothesis 1: As a CEO has more year of experience, his pay will increase

There will also be an assumption that CEOs hired from outside according to the previous performance of the company will tend to be highly compensated compared to that who has been internally sourced. This will depend on the company's previous year's performance. (Joskow and Rose) this is also due to the firms' market value greatly depends on the following year's performance.

Hypothesis 2: A CEO who is externally hired will be compensated more than a CEO who was internally hired

There is also a presumption that the CEO might have been promoted internally or was hired externally from a firm that he had acquired many years of experience. This study will use a value equal to 1 if the CEO was hired internally. According to Rose and Shepard (1994) a manager who is hired externally earns a salary of 15% more than if the CEO was hired internally.

Hypothesis 3: As the size of a firm grows, in terms sales, executive compensation increases

In this case our assumption is based that with the growth of the company the revenues will also grow because the CEO will have acquired enough experience in management thus liable to greater revenues.( Rose and Shepherd, 1994)

Hypothesis 4: There is a positive link between firm performance, "market value," and CEO compensation

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This is the assumption that the measure of the size of the firm is determined using the amount of sales and the number of employees according to Rose and Shepherd (1994). Thus the regression will include the value of sales which would stand for size and this will be presented in log form.


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Limitations: The major limitation that is most likely to hinder the effective exploration or rather the exhaustive investigation of the topic is the time constraint that is eminent due to the short period of the semester. The other limitation to this study is the long procedure that is involved in the process of booking for appointments with the various top organizations in order to interview their top executives. The existence of several variables in the research area is also most likely to cause complications since the factors have different levels of interactions with the research topic. Therefore, the process of selecting the most appropriate variables is also most likely hindering the pace of the data analysis.

Delimitations: I am opting not to concentrate on multiple teams in the process of executing this research, even though such an undertaking would bring about comparability which is a very valuable indicator in the process of necessitating a more in-depth analysis and understanding regarding the particular group on which I will place my focus. I addition to this, I will not employ structured interviews so as to put to a minimum the effects of personal obtrusiveness and my own influence and the rest of the team members.


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Carpenter, M.A. & Sanders, W.G. (2004).The effects of top management team pay and firminternationalization on MNC performance, Journal of Management, Vol. 30:4, pp. 509-528.

Coughlan, A.T. & Schmidt, R.M.( 1985) Executive Compensation, Management Turnover and Firm Performance, Journal of Accounting and Economics. pp. 43-66.

Devers, C.E Etal. (2007) 'Executive Compensation: A Multidisciplinary Review of Recent Developments', Journal of Management, Vol. 33:6, and pp. 1015-1076

Hall, B.J. & Liebman, J.B.( 1997) Are CEOs Really Paid Like Bureaucrats? National Bureau of Economic Research Working Paper Series, No. 6213.

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Lewellen, W.C.( 1970); Huntsman, B. Managerial Pay and Corporate Performance. The American Economic Review, 60, pp. 710-20.

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Incentive Problems: An Empirical Analysis, Journal of Accounting and Economics, 9,


Mehran, H. (1995), Executive Compensation Structure, Ownership, and Firm Performance, Journal of Financial Economics, 38, pp 163-84.

Mirrlees, J. (1976), The Optimal Structure of Incentives and Authority within an Organization, Bell Journal of Economics, 7, pp.105-131.

Murphy, K.J.( 1986) Incentives, Learning, and Compensation: A Theoretical and Empirical Investigation of Managerial Labor Contracts. The RAND Journal of Economics, 17, 1, pp. 59-76.

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Tested Propositions, Quarterly Journal of Economics, 70,pp.270-294.

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Tosi, H. And Gomez-Mejia, L (1989),The Decoupling of CEO Pay… [END OF PREVIEW] . . . READ MORE

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