Was Adam Smith right? evidence of compensating differential in CEO pay?

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Abstract

This paper estimates the compensating differential in CEO pay for the increasing risk of dismissal using contracted severance pay eligibility of the CEO as the main instrument. US CEOs receive a 3 per cent premium in pay for each percentage point increase in the risk of dismissal. In pointing to the dismissal risk as a determinant of CEO pay, these findings contribute to the debate on the recent growth in CEO pay and the potential impacts of governance reforms.
Original languageEnglish
Pages (from-to)1-24
Number of pages24
JournalManchester School
Volume84
Issue number1
DOIs
Publication statusPublished - Jan-2016
Externally publishedYes

Keywords

  • RISK
  • IDENTIFICATION
  • GOVERNANCE
  • MANAGEMENT
  • FIRM PERFORMANCE
  • EXECUTIVE TURNOVER
  • SARBANES-OXLEY ACT

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