Effect Of Relative Decision Monitoring On Chief Executive Compensation

Abstract

This study investigated the effects of relative decision monitoring, whereby decisions are compared to those of competitors, on chief executive officer (CEO) compensation. We tested for both cash compensation (salary plus bonus) and cash-plus-stock-option compensation. The study's premise was that, to the extent boards of directors consider behavioral information in the CEO evaluation process, performance should have a stronger influence on pay when CEO decisions differ from typical industry decisions. Thus, we compared critical strategic decisions of CEOs with the decisions of same-industry competitors. Results indicate that unique decision making significantly moderates the relationship between performance and compensation under some, but not all, conditions.