An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Martin Conyon
University of Pennsylvania

John E. Core
University of Pennsylvania

Wayne Guay
University of Pennsylvania

Abstract: We examine US and UK CEO pay and incentives in 1997 and 2003. Pay is the total of cash pay, stock and option grants, and other pay. Controlling for firm characteristics, we find that US CEOs have higher pay and much higher incentives. In 2003, US CEO pay was about 1.3 times UK CEO pay, as compared to 2.2 times in 1997. US CEO incentives in 2003 were about 8.8 times UK CEO incentives, as compared to 14.4 times in 1997. These narrowing differences over time result from substantial increases in UK pay and incentives and flat US pay and incentives. Although US pay is higher than that of the UK, we argue that a portion of US CEOs’ relatively greater pay is due to risk premiums related to their relatively greater equity incentives. Using reasonable estimates of these risk premiums, we find that, when normed by the larger amount of risky incentives held, US CEO pay does not appear large compared to that of the UK.

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