Abstract
I use new data made available by the 1993 Companies Act to examine trends in CEO and non-CEO executive employee (NCEE) pay and related governance issues.
Following mandatory disclosure on 1 July 1997, real CEO and NCEE cash compensation has grown at a median rate of 5.3% p.a. and 1.5% p.a. respectively.
This compares to a rate of 3% p.a. for shareholder returns. During the six-year period of the study more CEOs have been pushed into ‘high-income’ brackets. The proportion of firms paying the CEO in excess of $400,000 increased from 19% in
1997 to 35% in 2002. Real median CEO compensation increased from 9 to12 times real median worker income during the period.
Using firm governance characteristics, the paper develops definitions for high and low-power CEOs. These are used to test for significant differences in the level of CEO and NCEE pay over time. While the overall level of CEO cash compensation has risen, after adjusting for returns to shareholders, net growth in CEO pay between different CEO power groupings is not significantly different from zero. However there is evidence that high-power CEOs use ‘jawboning’ to increase executive employee pay packages.
There is a positive relationship between firm performance and CEO cash compensation, although the sensitivities on both contemporaneous and previous year shareholder returns are not strong. Further analysis shows that CEO pay-forperformance sensitivity is asymmetric and depends on CEO power.