CEO control, corporate performance and pay-performancesensitivity CEO控制、公司绩效和薪酬绩效敏感性.pdf

Journal of Economic Behavior Organization 106 (2014) 166–174 Contents lists available at ScienceDirect Journal of Economic Behavior Organization j o u r na l h o me p a g e : w w w. elsev /locate/jeb o CEO control, corporate performance and pay-performance sensitivity Yaron Amzaleg a , Ofer H. Azar b,∗ , Uri Ben-Zion b , Ahron Rosenfeld b a Peres Academic Center, Israel b Ben-Gurion University of the Negev, Israel a r t i c l e i n f o a b s t r a c t Article history: Agency theory suggests that high pay-performance sensitivity (PPS) of CEO’s compensation Received 24 December 2011 is an important motivation mechanism to the CEO to improve corporate performance. We Received in revised form 27 April 2014 develop a simple model that suggests that reverse causality should also be considered. Accepted 7 July 2014 Specifically, our model predicts that when good performance is expected, a powerful CEO Available online 15 July 2014 will push for a contract with higher PPS. Data from 135 Israeli companies over a five- year period confirm the model’s main prediction. Our empirical analysis shows that when JEL classification: the CEO is the chairman of the board of directors and thus is more powerful in affecting G30 his compensation scheme, he achieves a high PPS in good periods (in terms of corporate G34 J31 performance), compared to similar powerful CEOs