Work

CEOs' Outside Employment Opportunities and the Lack of Relative Performance Evaluation in Compensation Contracts

Year: 2006

Type: article

Abstract: ABSTRACT Although agency theory suggests that firms should index executive compensation to remove market‐wide effects (i.e., RPE), there is little evidence to support this theory. Oyer (2004, Journal of Finance 59, 1619–1649) posits that an absence of RPE is optimal if the CEO's reservation wages from outside employment opportunities vary with the economy's fortunes. We directly test and find support for Oyer's (2004) theory. We argue that the CEO's outside opportunities depend on his talent, as proxied by the CEO's financial press visibility and his firm's industry‐adjusted ROA. Our results are robust to alternate explanations such as managerial skimming, oligopoly, and asymmetric benchmarking.

Source: The Journal of Finance

DOI: 10.1111/j.1540-6261.2006.00890.x

Authors: SHIVARAM RAJGOPAL, TERRY SHEVLIN, VALENTINA ZAMORA

Institution: University of Washington

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: green

OpenAlex ID: W3122934843

FWCI: 48.37

Cites: 49

Cited by: 463

Related to: 10