TITLE

Executive Compensation and Corporate Production Efficiency: A Stochastic Frontier Approach

AUTHOR(S)
Baek, H. Young; Pag�n, Jos� A.
PUB. DATE
March 2002
SOURCE
Quarterly Journal of Business & Economics;Winter/Spring2002, Vol. 41 Issue 1/2, p27
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This study uses 1992-1998 data on the S&P 1500 firms to examine the relationship between executive pay and technical productive efficiency. The parameters of a stochastic frontier production function are estimated simultaneously with the firm-specific inefficiency effects in a panel framework. After controlling for industry and firm size, the level of CEO total compensation is positively related to technical efficiency. Annual salary and the value of restricted stocks and stock options as a percentage of total compensation, however, are both negatively related to technical efficiency. The number of years as a company CEO is also negatively related to technical efficiency. In all, the results suggest that both the level and the structure of CEO compensation are important factors when assessing the technical efficiency and economic performance of firms.
ACCESSION #
11587247

 

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