TY - UNPB
T1 - The efficiency premium in executive compensation
AU - Chollete, Lorán
AU - Lu, Ching-Chih
AU - Merkurieva, Irina
N1 - Funding: Chollete acknowledges funding from Finansmarkedsfondet Grant # 230876 and the Research Council of Norway.
PY - 2022/12/8
Y1 - 2022/12/8
N2 - We present a model linking corporate efficiency and executive pay, predicting that more efficient firms offer higher compensation to attract top talent. Since these firms are also larger, it provides a new perspective on the joint distribution of firm size and CEO pay. Using stochastic frontier analysis, we compute efficiency scores for US public firms and identify an efficiency premium of 2.8%. Despite the positive correlation between efficiency and executive pay, less efficient firms offer compensation that appears high for their CEO talent levels. We conclude that inefficiency is associated with overpayment, whereas more efficient firms demonstrate better compensation management.
AB - We present a model linking corporate efficiency and executive pay, predicting that more efficient firms offer higher compensation to attract top talent. Since these firms are also larger, it provides a new perspective on the joint distribution of firm size and CEO pay. Using stochastic frontier analysis, we compute efficiency scores for US public firms and identify an efficiency premium of 2.8%. Despite the positive correlation between efficiency and executive pay, less efficient firms offer compensation that appears high for their CEO talent levels. We conclude that inefficiency is associated with overpayment, whereas more efficient firms demonstrate better compensation management.
KW - Effective compensation
KW - Corporate efficiency
KW - Executive-firm matching
KW - Stochastic frontier
KW - Efficiency premium
U2 - 10.2139/ssrn.4290936
DO - 10.2139/ssrn.4290936
M3 - Working paper
T3 - S&P Global Market Intelligence Research Paper Series
BT - The efficiency premium in executive compensation
PB - SSRN
CY - Online
ER -