Determinants of Chief Executive Officer Compensation

This study examines the level and structure of CEO compensation of 2,448 CEO’s from 1,622 firms spanning a range extending from 1997 through 2002. Based on agency and expectancy theories, this study tests the hypotheses that corporate diversification is associated with CEO compensation. The results found that the higher degree of international diversification, higher accounting earning performance, higher investment opportunities, and larger firm size, resulted in CEO’s receiving higher levels of compensation. In contrast, the higher the degree of industrial diversification, the fewer levels of total compensation, long-term compensation, and stock options corporate CEO’s received. In addition, this study finds that both international and industrial diversification is associated with a greater use of current compensation, as well as a greater reliance on accounting-based, rather than stock return earning (market-based measures) of firm performance.