Chief Executive Compensation During Early Transition: Further Evidence from Bulgaria

By using new waves of a panel survey of Bulgarian firms with matching information for chief executives, evidence is presented on the determinants of chief executive compensation during 1992-1995. During that period, findings based on first difference models indicate that changes in CEO pay are positively related to changes in total assets whereas they are unrelated to changes in traditional measures of performance (such as profits, ROA, profit margin). More importantly, the most significant (statistically and economically) determinant of changes in CEO pay is consistently found to be the ownership structure of the firm. Specifically, CEOs in state owned firms receive additional pay worth almost 30,000 Leva (in real terms) more than CEOs in other firms, ceteris paribus. To achieve the equivalent amount of pay raise by increasing total assets would require raising the firm's total asset by more than 700 million Leva (in real terms). We compare our findings with those for other transitional economies (including work based on earlier waves of the Bulgarian panel) and studies of the managerial labor market in China and suggest that a key reason for our findings is the lack of financial discipline in Bulgarian state owned firms during 1992-1995.