The Impact of Firm Financial Efficiency on Executive Compensation

An Application of Panel Data Envelopment Analysis

Photo by Chris Li on Unsplash
Publication
International Business Research, 11(6)

Abstract

This study examines the effect of firm financial efficiency on executive compensation with an emphasis on the US apparel industry. We find that both annual efficiency levels and cumulative efficiency changes obtained from the Data Envelopment Analysis (DEA) are positively associated with CEO pay. The effect is stronger for technological changes and changes in scale efficiency. Our results seem to support the pay-for-efficiency paradigm, a stricter version of the pay-for-performance framework under the efficient contracting explanation for CEO pay.


Herman Sahni
Herman Sahni
Assistant Professor of Finance

My research interests include labor economics, health economics, and corporate finance.