Relationship of the Managerial Compensation Package with Managerial Equity Holdings and Firm Characteristics

Posted: 5 Apr 2004

See all articles by Richard A. Lord

Richard A. Lord

Montclair State University - School of Business

Yoshie Saito

City University of New York (CUNY) - Koppelman School of Business

Abstract

We study the relationship of the portions of salary, bonus, option and restricted stock grants, as a percentage of the total value of the CEO pay package, with total compensation, managerial equity holdings, firm equity risk, and several other variables. Using proportions captures important interactions among the components; a change in one affects the portions of the other three. We test hypotheses to determine if compensation contracts are designed primarily to control risk faced by the manager. We find that the portions of salary and bonuses are positively related to the value of managers' equity positions and their proportional holdings of firm shares, and negatively correlated with the size of the compensation package and firm equity risk. The results for option and restricted grants are generally the opposite. With respect to these major finds there is little difference in the structure of compensation between firms with positive and negative earnings.

Suggested Citation

Lord, Richard A. and Saito, Yoshie, Relationship of the Managerial Compensation Package with Managerial Equity Holdings and Firm Characteristics. Available at SSRN: https://ssrn.com/abstract=489044

Richard A. Lord (Contact Author)

Montclair State University - School of Business ( email )

Upper Montclair, NJ 07043
United States
973-655-7448 (Phone)
973-655-7629 (Fax)

Yoshie Saito

City University of New York (CUNY) - Koppelman School of Business ( email )

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