Abstract

Scholarly articles of the past have critically examined the compensation structure of the CEO. Unfortunately, few articles have attempted to explain the compensation structure of the CEO through the agency theory perspective. The research question to be addressed is to determine if the proportion of compensation that is salary-based is predictable by monitoring activities of the company. The theoretical chapter presents the case that a CEO who does not partake in shirking activities at all would be paid in solely salary if the compensation committee can determine his personal input into the company. Since they cannot, performance-based compensation methods are added to the compensation structure. This leads to an increase in monitoring that must be less than the anticipated level of shirking if it is to be an efficient way to both protect the company from a shirking CEO and not cost the company more than the CEO could take. Regressions results show that the operationalized model as a whole is statically significant in explaining the overall compensation structure. Unfortunately, company size is the only monitoring variable that was statistically significant for explaining changes in the compensation structure from monitoring costs. A joint test confirmed that the insignificant monitoring variables, together, have explanatory power; indicating that each company may just utilize separate variables and disregard the rest. The study confirms the significance of past control variables and continues the notion that they have an effect on the compensation structure for the CEO as a whole.

Advisor

Sell, John

Department

Business Economics

Disciplines

Economics

Keywords

business, compensation, monitor, shirk

Publication Date

2013

Degree Granted

Bachelor of Arts

Document Type

Senior Independent Study Thesis

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© Copyright 2013 Glenn Caventer