CEO Compensation and Stakeholders' Claims
Posted: 31 May 2005
The traditional view that corporations exist solely to serve the interests of the firm's shareholders has given way to a changing view that recognizes the importance of corporate constituents in addition to shareholders. Prior studies demonstrate a significant association between the sensitivity of CEO compensation and firm's stock prices. However, the association between CEO compensation and the claim of other primary stakeholders (customers, employees, suppliers) has not been examined. The purpose of this study is to investigate whether the adoption of long-term incentive plans align the interest of the CEO with the interest of the primary stakeholders in the firm. Using the fixed-effect regression, our results indicate a significant association between the change in CEO compensation and the claims of the customers, shareholders, and the employees. We contribute to the literature by demonstrating that the managers are not only accountable to the shareholders but also to primary stakeholders.
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