Synchronous and lagged relationships between CEO pay and performance of quality companies

Lawrence S. Tai, Zayed University

Document Type

Article

Source of Publication

Managerial Finance

Publication Date

7-4-2008

Abstract

© 2008, Emerald Group Publishing Limited. Purpose – This paper aims to examine the synchronous and lagged relationships between CEOs' pay and the performance of a group of public companies that had won a very prestigious award: the Malcolm Baldrige National Quality Award (MBNQA). Design/methodology/approach – This study uses three rates of return to represent firm performance: return on assets, return on equity and holding period return. Regression analysis is used to determine the direction of causality between CEO pay and firm performance and the existence of lagged relationship between them. Findings – The findings indicate the existence of synchronous and lagged relationships between CEO pay and firm performance. However, the direction of causality is mainly from pay to performance, and not vice versa. Research limitations/implications – The results presented in this paper are limited by the small sample size of MBNQA winning companies. Although the award began in 1988, only a few companies won the award each year and many of them were not public companies. In addition, five companies won the award twice and one company won the award three times, which further reduces the sample size. Originality/value – This paper finds the existence of synchronous and lagged relationships between CEO pay and firm performance for a group of quality companies.

ISSN

0307-4358

Publisher

Emerald Group Publishing Ltd.

Volume

34

Issue

8

First Page

555

Last Page

561

Disciplines

Business

Keywords

Chief executives, Pay, Performance measures, Public sector organizations, Quality

Scopus ID

85015613405

Indexed in Scopus

yes

Open Access

yes

Open Access Type

Green: A manuscript of this publication is openly available in a repository

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