CEO Compensation and Managerial Performance: An Analysis of US Non-Financial Firms

This paper conducts an analysis of the relationship between CEO compensation and managerial performance on a large sample of US public firms, by taking into account the different components of CEO compensation. We estimate a stochastic frontier model in which managerial performance is related to compensation components. We find a positive influence of CEO compensation on managerial performance, with a differentiated impact for components of compensation. We show that increases in salary, bonus, and options grants tend to enhance managerial performance. Our findings tend therefore to support the view that compensation contracts can be designed to increase managerial performance.