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Examining the effects of a global crisis on CEO compensation: Fortune 100 evidence

Vugt, F. van (2013) Examining the effects of a global crisis on CEO compensation: Fortune 100 evidence.

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Abstract:CEO compensation is a hot topic in the popular press, as the earned amounts are extremely large and the pay gap between executives and employees is larger than ever before. Moreover, the excessive amounts of executive compensation are in conflict with the recessionary business climate and the governmental bailouts that some firms received. This paper aims at uncovering changes in executive compensation as a result of the global crisis. It does so by assessing the CEO compensation practices of Fortune 100 companies pre-, during-, and post-crisis (2006 – 2012). Firstly, important determinants of the components of executive compensation are identified by means of a literature study, after which the determinants are tested according to Fortune 100 practices. Weak relationships were found between total CEO compensation and the determinants firm size, firm performance, and CEO seniority. This provides no evidence for the optimal contracting view. A significant increase in the ‘pay not at risk’ component was found during the crisis as compared to the pre- and post-crisis periods, which suggests that the optimal contracting view holds or that the determinants of the ‘pay at risk’ component decreased in relative value. Combining these findings leads this paper to conclude that there is no unified approach adopted by Fortune 100 firms when it comes to compensation practices.
Item Type:Essay (Bachelor)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration BSc (56834)
Link to this item:http://purl.utwente.nl/essays/63733
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