An Analysis of the Pay-Performance Association for CEOs in FTSE 350 firms

• In Event: Management, Etc.

Abstract

The purpose of this paper is to explore whether characteristics of the CEO compensation scheme have an effect on the pay-performance sensitivity in firms on the FTSE350 index in the period 2004-2013. We examine one particular issue, namely the types of performance measures that are used in the bonus contracts. We hypothesize and find that firms that employ a mix of financial and non-financial performance measures, such as customer satisfaction and individual strategies, have stronger pay-performance sensitivity than firms that rely only on financial measures, such as earnings per share. We interpret this result as evidence that non-financial measures provide managers with long-term oriented incentives that financial measures fail to provide and are related to the shareholder wealth increase.

Author

• Myojung Cho, Pace University