数量经济与金融系列讲座第281期：CEO Incentives: Measurement, Determinants, and Impact on Performance

Title: CEO Incentives: Measurement, Determinants, and Impact on Performance

Speaker: Hongfei (Frank) Tang,Associate Professor,Department of Finance,Stillman School of Business,Faculty Fellow of The Institute of International Business,Seton Hall University

Abstract: This paper examines the determinants of different measures of CEO incentives and their link to firm performance. These incentive measures include pay-performance elasticity (PPE), payperformance semi-elasticity (PPSE), and the traditional pay-performance sensitivity (PPS). We clarify the theoretical settings under which each measure best captures incentives and provide insight into the determinants of the optimal level of incentives. Consistent with model predictions, our empirical analysis finds that larger, more R&D intensive, and less risky firms have higher PPE, while older and longer tenured CEOs have lower PPE. The results on size and risk are not only intuitively plausible, they help resolve some puzzling prior empirical findings that were obtained using PPS as the measure of incentives. Concerning the impact of incentives on performance as measured by ROA and Tobin’s Q, we find that performance is generally first increasing and eventually decreasing in PPE and PPSE, while results using PPS are mixed. Furthermore, a deviation from the PPE or PPSE level predicted by our determinants appears detrimental to firm performance. Our evidence thus suggests that CEO effort has a multiplicative impact on firm performance and on average firms are providing close to the optimal level of incentives.