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) |
|---|---|
| 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