Financial Performance and Compensation Alignment of CEOs - Evidence From the USA

Abstract

Largest U.S, companies have for years sought to tie executive pay to financial and stock market results. Using data from selected Fortune 500 companies over a decade, this paper documents CEOs’ compensation is positively related to firm’s accounting based performance. However, the study finds CEO compensation and market based performance still lacks alignment. Additionally, the study investigates the financial performance of U.S companies both with and without women on their board. This in-depth study explores the theories of agency problem and empirically argues that increasing female directors on board composition can partially resolve agency problem as our results indicate adding women to the board maximizes the shareholder’s value.