Abstract
Claims of excessive top executive team compensation irrespective of company performance resulted in a law allowing shareholders to approve compensation. The approval, called say-on-pay, was supposed to help align compensation with performance. Since say-on-pay was implemented in 2011, little has been done to test its efficacy. This study looks at the potential efficacy of say-on-pay by looking for evidence that compensation aligns with performance six years after say-on-pay was first implemented. Say-on-pay may have had its intended effect if, by 2017, compensation aligns with performance. Compensation is measured as all forms of pay given to the top five executives of a company. Performance is measured by company stock prices or factors that support stock prices, such as sales and earnings. A close alignment between compensation and performance should be possible because compensation is mostly company stock and stock options. However, agency costs and managerial power may overwhelm say-on-pay oversight so that compensation still does not align with company performance. This paper examines compensation and performance in S&P 500 companies in 2017 and finds little evidence that say-on-pay has aligned compensation with performance.
Recommended Citation
Newman, Christine M.; Davis, Shelley; and Newman, Joseph A.
(2020)
"The Alignment of Top Executive Team Compensation with Company Performance,"
Journal of Business, Industry, and Economics: Vol. 25, Article 5.
Available at:
https://roar.una.edu/jobie/vol25/iss1/5