{"title":"Implicit Contracts and the Explanatory Power of Top Executive Compensation for Future Performance","authors":"Rachel M. Hayes, Scott Schaefer","doi":"10.2139/ssrn.60870","DOIUrl":null,"url":null,"abstract":"Recent research suggests that implicit incentive contracts may be based on performance measures that are observable only to the contracting parties. We derive and test implications of this insight for the relationship between executive compensation and firm performance. If corporate boards optimally use both observable and unobservable (to outsiders) measures of executive performance and the unobservable measures are correlated with future firm performance, then unexplained variation in current compensation should predict future variation in firm performance. Further, compensation should be more positively associated with future performance when observable measures are less useful for contracting. Our results are consistent with these hypotheses.","PeriodicalId":47357,"journal":{"name":"Corporate Communications","volume":null,"pages":null},"PeriodicalIF":2.8000,"publicationDate":"1997-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"246","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Corporate Communications","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.60870","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS","Score":null,"Total":0}
引用次数: 246
Abstract
Recent research suggests that implicit incentive contracts may be based on performance measures that are observable only to the contracting parties. We derive and test implications of this insight for the relationship between executive compensation and firm performance. If corporate boards optimally use both observable and unobservable (to outsiders) measures of executive performance and the unobservable measures are correlated with future firm performance, then unexplained variation in current compensation should predict future variation in firm performance. Further, compensation should be more positively associated with future performance when observable measures are less useful for contracting. Our results are consistent with these hypotheses.
期刊介绍：
Corporate Communications: An International Journal addresses the issues arising from the increased awareness that an organisation''s communications are part of the whole organisation, and that the relationship an organisation has with its external public requires careful management. The responsibility for communications is increasingly being seen as part of every employee''s role and not simply the function of the marketing/PR departments. This journal will illustrate why communications are important and how best to implement a strategic communications plan.
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