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An Empirical Investigation of the Role of Subjective Performance Assessments Versus Objective Performance Indicators as Determinants of CEO Compensation

An Empirical Investigation of the Role of Subjective Performance Assessments Versus Objective... The empirical support for agency theory explanations for the great variance in CEO pay has been equivocal. Drawing from the performance appraisal literature, we hypothesize that boards of directors incorporate human judgment into the evaluation and reward of CEO performance in order to balance managerial risk with agency costs. We test Baysinger and Hoskisson’s (1990) proposition that insider‐dominated corporate boards rely on subjective performance evaluation to reward the CEO, and we argue that R&D intensity influences this relationship. Using a sample of Fortune firms, findings support our contention that human judgment is important in evaluating and rewarding CEO performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Management Research: The Journal of the Iberoamerican Academy of Management Emerald Publishing

An Empirical Investigation of the Role of Subjective Performance Assessments Versus Objective Performance Indicators as Determinants of CEO Compensation

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Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
1536-5433
DOI
10.2753/JMR1536-5433060101
Publisher site
See Article on Publisher Site

Abstract

The empirical support for agency theory explanations for the great variance in CEO pay has been equivocal. Drawing from the performance appraisal literature, we hypothesize that boards of directors incorporate human judgment into the evaluation and reward of CEO performance in order to balance managerial risk with agency costs. We test Baysinger and Hoskisson’s (1990) proposition that insider‐dominated corporate boards rely on subjective performance evaluation to reward the CEO, and we argue that R&D intensity influences this relationship. Using a sample of Fortune firms, findings support our contention that human judgment is important in evaluating and rewarding CEO performance.

Journal

Management Research: The Journal of the Iberoamerican Academy of ManagementEmerald Publishing

Published: Apr 1, 2008

Keywords: Agency theory; CEO pay; Performance appraisal; CEO performance

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