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

Zoltan P Matolcsy
University of Technology Sydney Australia

Anna P Wright
University of Technology Sydney Australia

Abstract: The relation between CEO compensation structure and firm performance has been well documented in the literature, but concentrates on a data set where equity-based compensation is routinely used. This study provides detailed evidence on this issue using data where equity-based compensation is not always offered.

This study has two objectives. First, the study provides evidence on the relation between firm performance and different CEO compensation structures, and shows that on average, firm performance does not differ across compensation structures. The second objective of this study is to build a model that describes an ‘efficient’ compensation structure, and to test the performance consequences of deviations from this contract. The study finds some evidence to suggest that firm performance is lower in firms using sub-efficient CEO compensation structures. Overall, this study provides important evidence on the link between firm performance and CEO compensation structure.

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