Pay for Performance in Volatile Markets
Document Type
Working Paper
Date of This Version
12-1-2003
Keywords
incentive pay, stock options, executive pay, market volatility
Abstract
In recent years, literature has suggested that executive compensation schemes conform to principal-agent models of incentive pay. Specifically, when analyzing total compensation (including stock options), executive pay seems to be positively related to the market performance of the corporation's stock. However, such studies were performed during the recent bull market of the 1990s. This paper estimates a model of incentive pay using data from more recent volatile markets of 1999-2001, and finds that the incentive component of executive pay has at least diminished, and has perhaps reversed. Thus, incentive pay may be something of a "fair weather" phenomenon.
Working Paper Number
0302
Recommended Citation
Cahill, Miles and George, Alaina, "Pay for Performance in Volatile Markets" (2003). Economics Department Working Papers. Paper 108.
https://crossworks.holycross.edu/econ_working_papers/108
Published Version
This article was published as: Cahill, M., George, A. (2005). Pay for Performance in Volatile Markets. American Economist, 49(2), pp. 3-25.