CEO remuneration during the financial crisis: an empirical analysis

Author/s Silvia Gaia
Publishing Year 2013 Issue 2013/2 Language Italian
Pages 18 P. 111-128 File size 711 KB
DOI 10.3280/MACO2013-002006
DOI is like a bar code for intellectual property: to have more infomation click here

Below, you can see the article first page

If you want to buy this article in PDF format, you can do it, following the instructions to buy download credits

Article preview

FrancoAngeli is member of Publishers International Linking Association, Inc (PILA), a not-for-profit association which run the CrossRef service enabling links to and from online scholarly content.

This paper investigates the roles that optimal contracting and rent-extraction theories play in explaining the variation of CEO remuneration during the financial crisis in a sample of 140 Italian non-financial firms listed in the period 2007-2009. By using an OLS regression model, results show that Italian firms reacted to the financial crisis by increasing fixed remuneration in order to reduce CEO losses caused by the decrease of variable remuneration and/or of the value of the company shares owned. These findings are consistent with rent-extraction theory, as CEO remuneration seems to be a tool for extracting a rent rather than a solution for agency problems. This study offers insights to policy-makers that should mandate higher transparency on the criteria used by Italian companies in setting fixed remuneration and enhance the protection of minority shareholders’ rights.

Keywords: CEO remuneration, firm performance, rent-extraction, financial crisis.

  1. Antle R., Smith A. (1986), An empirical investigation of the relative performance evaluation of corporate executives, Journal of Accounting Research, 24,1, pp. 1-39. DOI: 10.2307/2490802
  2. Baker G., Jensen M., Murphy K. (1992), Compensation and Incentives: Practice vs. Theory, Journal of Political Economy, 100, 3, pp. 593-616.
  3. Barontini R., Bozzi S. (2011), Board compensation and ownership structure: empirical evidence for Italian listed companies, Journal of Management and Governance, 15, 1, pp. 59-89. DOI: 10.1007/s10997-009-9118-5
  4. Bebchuk L., Fried J. (2004), Pay without performance. The unfulfilled promise of executive compensation, Cambridge, Harvard University Press. DOI: 10.2307/1600632
  5. Bebchuk L., Fried J., Walker D. (2002), Managerial Power and Rent extraction in the Design of Executive Compensation, University of Chicago Law Review, 69, pp. 751-846. DOI: 10.1093/oxrep/gri017
  6. Bebchuk, Y. Grinstein (2005), The growth of executive pay, Oxford Review of Economic Policy, 21, 2, pp. 283-303.
  7. Bhagat S., Romano R. (2009), Reforming Executive Compensation: Focusing and Committing to the Long-term, Yale Journal of Regulation, 26, 2, pp. 359-372.
  8. Blundell-Wignall A., Atkinson P., Lee S. (2008), The Current Financial Crisis: Causes and Policy Issues, Financial Market Trends, OECD.
  9. Bozzi S. (2011), La remunerazione manageriale. Lezioni dalla crisi e proposte di riforma, Milano, FrancoAngeli.
  10. Camuffo, A. (2009), Le retribuzioni dei Ceo delle maggiori società italiane: equità e competitività, Economia&Management, 6, pp. 47-82.
  11. Castellano, N. (2011), Modelli e misure di performance aziendale: analisi della letteratura e spunti di ricerca, Management Control, 1, pp. 41-63.
  12. Conti V. (2009), Sistemi di remunerazione, incentivi e corporate governance: alcune riflessioni sulla recente crisi, Bancaria, 65, 12, pp. 12-20.
  13. Conyon, M., Fernandes, N., Ferreira, M., Matos, P,. & Murphy, K. (2011), The executive compensation controversy: a transatlantic analysis, Cornell University, ILR School, Institute for Compensation Studies site, Working paper.
  14. Deckop J. (1988), Determinants of Chief Executive Officer Compensation, Industrial and Labor Relations Review, 41, 2, pp. 215-226. DOI: 10.2307/2523632
  15. Dyck, A., Zingales, L. (2004) Private benefits of control: An international comparison, Journal of Finance, 59, 2, pp. 537-600. DOI: 10.1111/j.1540-6261.2004.00642.x
  16. Eisenhardt K. (1989), Agency Theory: An Assessment and Review, Academy of Management Review, 14, 1, pp. 57-74. DOI: 10.5465/AMR.1989.4279003
  17. Ely K. (1991), Interindustry Differences in the Relation between Compensation and Firm Performance Variables, Journal of Accounting Research, 29, 1, pp. 37-58. DOI: 10.2307/2491027
  18. Finkelstein S., Hambrick D. (1989), Chief Executive Compensation: A Study of the Intersection of Markets and Political Processes, Strategic Management Journal, 10, 2, pp. 121-134. DOI: 10.1002/smj.4250100203
  19. Garvey G.T., Milbourn T.T. (2006), Asymmetric benchmarking in compensation: Executives are rewarded for good luck but not penalized for bad, Journal of Financial Economics, 82, 1, pp. 197-225. DOI: 10.1016/j.jfineco.2004.01.006
  20. Gaver, J., Gaver, K. (1998), The relation between nonrecurring accounting transactions and CEO cash compensation, The Accounting Review,73, April, pp. 235-253.
  21. Gray S., Cannella A. (1997), The role of risk in compensation, Journal of Management, 23, 5, pp. 517-540. DOI: 10.1177/014920639702300402
  22. Jensen M., Meckling W. (1976), Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, Journal of Financial Economics, 3, 4, pp. 305-360. DOI: 10.1016/0304-405X(76)90026-X
  23. Jensen M., Murphy K. (1990), Performance Pay and Top Management Incentives, Journal of Political Economy, 98, 2, pp. 225-264. DOI: 10.1086/261677
  24. Johnson S., La Porta R., Lopez-De-Silanes F., Shleifer A. (2000), Tunneling, The American Economic Review, 90, 2, pp. 22-27. DOI: 10.1257/aer.90.2.22
  25. Kaplan, S. (2008), Are U.S. CEOs overpaid, Academy of Management Perspectives, 22, 2, pp. 5-20. DOI: 10.5465/AMP.2008.32739755
  26. Lambert R., Larcker F. (1987), An Analysis of the use of Accounting and Market Measures of Performance in Executive Compensation Contracts, Journal of Accounting Research, 25, pp. 85-125. DOI: 10.2307/2491081
  27. Mehran H. (1995), Executive compensation structure, ownership, and firm performance, Journal of Financial Economics, 38, 2, pp. 163-184. DOI: 10.1016/0304-405X(94)00809-F
  28. Melis A. (1999), Corporate Governance. Un’analisi empirica della realtà italiana in un’ottica europea, Torino, Giappichelli.
  29. Melis A., Carta S., Gaia S. (2010), I compensi basati su azioni. Principi, teorie ed evidenze empiriche, Milano, Giuffrè.
  30. Melis A., Carta S., Gaia S. (2012), Executive remuneration in blockholder-dominated firms. How do Italian firms use stock options?, Journal of Management and Governance, 16, 3, pp. 511-541. DOI: 10.1007/s10997-010-9163-0
  31. Molteni, M., a cura di (1997), I sistemi di corporate governance nelle grandi imprese italiane, Milano, Egea.
  32. Onesti T., Romano M. (2010), Le politiche di remunerazione degli amministratori esecutivi e dei dirigenti con responsabilità strategiche, in F. Fortuna, a cura di, La corporate governance nell’esperienza nazionale e internazionale. Aspetti comparativi e profili evolutivi, Bologna, il Mulino.
  33. Onida P. (1968), Economia d’Azienda, Torino, Utet.
  34. Riccaboni A (1999)., Performance ed incentivi: il controllo dei risultati nella prospettiva economico-aziendale, Padova, Cedam.
  35. Robert D. (1956), A General Theory of Executive Compensation Based on Statistically Tested Propositions, Quarterly Journal of Economics, 70, 2, pp. 270-294. DOI: 10.2307/1884268
  36. Rosen S. (1992), Contracts and the Market for Executives, in Wein L., Wijkander H., eds, Contract Economics, Oxford (UK), Blackwell.
  37. Salancik G., Pfeffer J. (1980), Effects of Ownership and Performance on Executive Tenure in U.S. Corporations, The Academy of Management Journal, 23, 4, pp. 653-664. DOI: 10.2307/255554
  38. Shaw, K., Zhang M. (2010), Is CEO cash compensation punished for poor firm performance?, The Accounting Review, 82, 3, pp. 1065-1093. DOI: 10.2308/accr.2010.85.3.1065
  39. Simon H. (1955), The Compensation of Executives, Quarterly Journal of Economics, 69, 1, pp. 32-33.
  40. Smith C., Watts R. (1992), The investing opportunity set and corporate financing, dividend, and compensation policies, Journal of Financial Economics, 32, 3, pp. 263-292. DOI: 10.1016/0304-405X(92)90029-W
  41. Volpin, P. (2002), Governance with poor investor protection: Evidence from top executive turnover in Italy, Journal of Financial Economics, 64, 1, pp. 61-90. DOI: 10.1016/S0304-405X(02)00071-5
  42. Williamson, O. (1988), Corporate finance and corporate governance, Journal of Finance,43, 3, pp. 567-591. DOI: 10.1111/j.1540-6261.1988.tb04592.x
  43. Zattoni A., Minichilli A. (2009), The Diffusion of Equity Incentive Plans in Italian Listed Companies: What is the Trigger?, in Corporate Governance: An International Review, 17, 2, pp. 224-237.
  44. Zona F. (2001), La retribuzione degli amministratori delegati nelle società quotate, in Airoldi G., Zattoni A., a cura di, Piani di stock options. Progettare la retribuzione degli amministratori, Milano, Egea.

Silvia Gaia, La remunerazione dell’amministratore delegato durante la crisi finanziaria: un’analisi empirica in "MANAGEMENT CONTROL" 2/2013, pp 111-128, DOI: 10.3280/MACO2013-002006