CEO Compensation for Major US Companies in 2006
The purpose of this paper is to update the empirical investigation into the pay-setting practices of major U.S. companies. While it enters the debate on the determinants of CEO compensation, our approach is explanatory rather than prescriptive. In our empirical analysis, we use a sample of 236 major U.S. firms from the 2006 WSJ/Mercer CEO Compensation Survey. We run a series of cross-sectional regressions that consider the effects of performance indicators on total direct compensation and the cash bonus. We also test the effects on non-performance variables, which represent potential agency problems involved with CEO compensation. We find that CEO compensation is tied to firm performance, but whether the link has increased or decreased in strength over time remains unclear. We also determine that non-performance related factors contribute significantly to CEO compensation: CEOs who are also chairmen of the board make 35% more than non-chairmen, and companies that grant more stock options tend to have 30% lower dividend yields.