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CEO INCENTIVES — IT'S NOT HOW MUCH YOU PAY, BUT HOW *

CEO INCENTIVES — IT'S NOT HOW MUCH YOU PAY, BUT HOW * Footnotes 1 . The median CEO in our sample holds stock worth $2.4 million. The average 1988 salary and bonus for the CEOs in our sample was roughly $1 million. At a real interest rate of 3%, the present value of the salary and bonus for the next five years to retirement (the average for the sample) is $4.6 million. Thus total lifetime wealth from the company is $7 million 2 . See Robert Gibbons and Kevin Murphy , “ Relative Performance Evaluation for Chief Executive Officers ,” Industrial and Labor Relations Review , February 1990 , p. 30 – S . 3 . See Jerold B. Warner , Ross L. Watts , and Karen H. Wruck , “ Stock Prices and Top Management Changes Journal of Financial Economics , JanuaryMarch 1988 , p. 461 ; and Michael S. Weisbach, “Outside Director and CEO Turnover,” Journal of Financial Economics, January‐March 1988, p. 431. 4 . For more detail on these tests, see our article, “ Performance Pay and Top Management Incentives ,” Journal of Political Economy , April 1990 . 5 . Data on hourly and salaried workers come form the Michigan Panel Study on Income Dynamics. The http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Applied Corporate Finance Wiley

CEO INCENTIVES — IT'S NOT HOW MUCH YOU PAY, BUT HOW *

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Publisher
Wiley
Copyright
Copyright © 1990 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1078-1196
eISSN
1745-6622
DOI
10.1111/j.1745-6622.1990.tb00207.x
Publisher site
See Article on Publisher Site

Abstract

Footnotes 1 . The median CEO in our sample holds stock worth $2.4 million. The average 1988 salary and bonus for the CEOs in our sample was roughly $1 million. At a real interest rate of 3%, the present value of the salary and bonus for the next five years to retirement (the average for the sample) is $4.6 million. Thus total lifetime wealth from the company is $7 million 2 . See Robert Gibbons and Kevin Murphy , “ Relative Performance Evaluation for Chief Executive Officers ,” Industrial and Labor Relations Review , February 1990 , p. 30 – S . 3 . See Jerold B. Warner , Ross L. Watts , and Karen H. Wruck , “ Stock Prices and Top Management Changes Journal of Financial Economics , JanuaryMarch 1988 , p. 461 ; and Michael S. Weisbach, “Outside Director and CEO Turnover,” Journal of Financial Economics, January‐March 1988, p. 431. 4 . For more detail on these tests, see our article, “ Performance Pay and Top Management Incentives ,” Journal of Political Economy , April 1990 . 5 . Data on hourly and salaried workers come form the Michigan Panel Study on Income Dynamics. The

Journal

Journal of Applied Corporate FinanceWiley

Published: Sep 1, 1990

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