DOI: 10.5176/2251-1970_BizStrategy13.08
Authors: Gary F. Keller
Abstract: Calculating the economic value that a CEO contributes to the value of a corporation is seemingly a moot point. The standard method of evaluation is the use of financial ratios, the value of the firm’s stock price and to what degree was the overall objectives of the board of directors were accomplished. During the course of the Great Recession which began in December, 2007 to the current sluggish recovery, widespread attention is being paid to executive compensation; in particular to CEOs whose firms that have lost financial value, went out of business or simply stagnated due to the present world economic conditions.
Regardless of the industry, place in the economic/industry cycle the issue of determining if a CEO’s annual compensation is directly correlated to yearly increases or decreases in enterprise value is a topic that few outside the boards of directors’ corporate compensation committees clearly understand.
The purpose of this quantitative research project was to investigate to what extent if any a linkage existed between the annual salaries of the CEOs of 48 publically traded firms in the State of Wisconsin, USA and increases/decreases in the price of their corporations’ stock price and net revenue. The author of this study, a resident of Wisconsin selected the State of Wisconsin as a micro-study due to the number of Fortune 1000 firms (25 – 16th highest in the United States) and Fortune 500 companies (10).
Some well-known corporations include Fiserv, Harley-Davidson, Johnson Controls, Kohl’s, Manpower, Oshkosh and Rockwell Automation. The outcomes from this research showed that there was no statistically significant correlation between the compensation of corporate executives of 48 publically traded firms in the state of Wisconsin and the net incomes and stock prices of their firms in 2008.
However, in 2010 while there was no statistically significant correlation between the compensation of corporate executives of 48 publically traded firms in the state of Wisconsin and the stock prices of their firms in 2010, there was a statistically significant correlation between the compensation of these executives and the net incomes of their firms.
Keywords: Management Practices, Economic Performance, Economic Measurement of Management, For- Profit Performance Measurements, Management Theory, Compensation Theory
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