Dowen, Richard J.
B.S. (Bachelor of Science)
Department of Finance
This paper aims to shed light on the relationship between CEO compensation and management efficiency. It reports the results of an empirical study of a sample of Fortune 500 firms. My hypothesis is that there is a positive relationship between CEO compensation and management efficiency. In order to try to prove my hypothesis, I conducted several tests. The tests were performed by dividing the sample in a number of ways and then performing a regression analysis on the data. The first test was conducted by taking the sample as a whole, the second by dividing the sample by industry, third by dividing the sample by market value (size), and finally by dividing the sample by salary-to- asset ratio. The results of the first test showed that, overall, no relationship exists between CEO compensation and the efficiency of management. The second test showed that a relationship does exist between CEO compensation and management efficiency in some industries. The next test showed that a positive relationship exists between the two variables for small firms, and a negative relationship exists for large firms. The final test also provides support for the idea that CEO compensation is related to the efficiency of management. Although my hypothesis was not entirely correct, it did prove to be accurate in several cases.
Stellano, Wende, "CEO Salary and Management Efficiency" (1995). Honors Capstones. 275.
Northern Illinois University
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