Leadership

Executive Pay And Firm Performance: Methodological Considerations And Future Directions

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Executive Summary

This paper is an investigation of the pay-for-performance link in executive compensation. In particular the authors document main issues in the pay-performance debate and explain practical issues in setting pay as well as data issues including how pay is disclosed and how that has changed over time. They also provide a summary of the state of CEO pay levels and pay mix in 2009 using a sample of over 2,000 companies and describe main data sources for researchers. They also investigate what they believe to be at the root of fundamental confusion in the literature across disciplines - methodological issues. In exploring methodological issues, they focus on empirical specifications, causality, fixed-effects, and first-differencing and instrumental variables issues.

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