Performance Pay and Top-Management Incentives
Abstract
The authors' estimates of the pay-performance relation (including pay, options, stockholding, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 for every $1,000 changes in shareholder wealth. Although the incentives generated by stock ownership are large relative to pay and dismissal incentives, most CEOs hold trivial fractions of the firms' stock, and ownership levels have declined over the past fifty years. The authors hypothesize that public and private political forces impose constraints that reduce the pay-performance sensitivity. Declines in both the pay-performance relation and the level of CEO pay since the 1930s are consistent with this hypothesis. Copyright 1990 by University of Chicago Press.(This abstract was borrowed from another version of this item.)
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Public trading of shares in stock markets that efficiently reflect information about firms allows owners to link managerial compensation to stock prices and better align the interests of managers with those of shareholders.
“For example, public trading of shares in stock markets that efficiently reflect information about firms allows owners to link managerial compensation to stock prices and better align the interests of managers with those of shareholders”
From Finance, Growth, and Inequality (2021) · cites this paper as Jensen and Murphy, 1990
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- Authors
- Jensen, M. C., & Murphy, K. J.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 1990-04
- Volume
- 98
- Issue
- 2
- Pages
- 225-264
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W3124994146
- Cited by
- 5,083
- References
- 0
- Citations by year
- 2026: 142 · 2025: 193 · 2024: 215 · 2023: 182 · 2022: 208 · 2021: 194 · 2020: 198 · 2019: 235 · 2018: 210 · 2017: 221 · 2016: 195 · 2015: 214 · 2014: 211 · 2013: 222 · 2012: 210
- FWCI
- 144.66
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- Journal of Political Economy (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Social Sciences › Business, Management and Accounting › Management Information Systems › Accounting and Organizational Management
- Social Sciences › Business, Management and Accounting › Strategy and Management › Political Influence and Corporate Strategies
- Keywords
- performance-based pay, CEO stock ownership, executive stock options, CEO dismissal, shareholder value, top management incentives
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