| We examined the relationship between Chief Executive Officer (CEO) compensation packages and firm performance, and the effect of both the 2008 crisis and introduction of the “say-on-pay” (SOP) vote in 2011 on CEO pay in the basic materials, consumer goods and services sectors. The theoretical approach to deal with the agency problem can be divided into two broad groups. In the first group are authors who assume that a CEO has a certain degree of managerial power and is able to affect the amount of total pay. The second group, on the other hand, states that high pay can be explained by natural market forces, such as a more intense competition in the market for talents (Frydman, The Journal of Economic History, 2007), or by rapid development in technology and growth in the company size (Kaplan, Review of Financial Studies, 2010). Section 14 of The Securities and Exchange Act of 1934 requires disclosure of CEO pay in relation to firm performance. It does not, however, make clear how such a relationship should be expressed. The incentive package is measured in two ways using ex-ante and ex-post approaches in empirical research. The first one is often referred to as grant-date pay, the latter one as realized pay. Both Kaplan (National Bureau of Economic Research [NBER] 2012) and Murphy (Handbook of the Economics of Finance, 2012) state that realized pay is a more appropriate measure if the research goal is examination of the relationship between firm performance and the amount of CEO pay. We chose a tenyear period from 2004 to 2013 since it can be also used for the comparison of pre-/postcrisis firm performance and the amount of CEO pay during these two sub-periods. |
