Interindustry Differences In The Relation Between Compensation And Firm Performance Variables

In this study I document interindustry differences in the relation between CEO compensation and accounting-based firm performance variables under the assumption that firms in the same industry face similar production environments. If CEO compensation is related to firm performance because the latter reflects executive performance,' differences in production environment should cause interfirm differences in the relation between CEO compensation and accounting-based firm performance. I focus on this relation because one objective of accounting-the stewardship objective-is to provide information useful in evaluating managers. I examine four kinds of variables which reflect executive performance, taken from discussions by Standard & Poor's industry analysts: stock returns, accounting returns, sales revenue, and net interest income. These variables are examined for banks, electric utilities, oil and gas firms, and retail groceries between 1978 and 1982. The analysis examines both the explicit contracts made public by firms and the implicit statistical relation between compensation and firm performance.