Abstract
I analyze the relationship between firm size and the extent to which executive compensation depends on the wealth of the firm's shareholders. I use a simple agency model to motivate an econometric model of this relationship. Estimating this model on chief executive officer (CEO) compensation data using nonlinear least squares, I determine that pay-performance sensitivity (as defined by Jensen and Murphy (1990b)) appears to be approximately inversely proportional to the square root of firm size (however measured). I also analyze the properties of pay-performance sensitivity for "teams" of executives working for the same firm and show it to have similar properties as CEO pay-performance sensitivity.
Original language | English (US) |
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Pages (from-to) | 436-443 |
Number of pages | 8 |
Journal | Review of Economics and Statistics |
Volume | 80 |
Issue number | 3 |
DOIs | |
State | Published - Aug 1998 |
ASJC Scopus subject areas
- Social Sciences (miscellaneous)
- Economics and Econometrics