Anytime you turn on the TV, listen to the radio or surf the
web, Executive Compensation is a subject that is continually being examined.
Not only stockholders but normal citizens are concerned with the amount of
compensation public companies executives are paid. Surf the web for a few
minutes and you can find what top CEO’s are being paid, but is that the extent
of their compensation? We all know executives are being paid a huge salary, but
the compensation doesn’t stop there. Perquisites are perks, or “benefits
provided to executives above and beyond regular income” (Liu, Yin 1).
Perquisites are things like personal aircraft, living arrangements, chauffeured
limousines, memberships and other lavish items. Companies provide these perks
to “retain the best leaders and allow executives to operate more efficiently”
(Liu, Yin 1).These perks were originally not disclosed in executive
compensation unless it exceeded ten percent of the total annual salary.
Most shareholders are not presented with detailed
information on the perquisites available to executives. Since this is the case Harrison
Liu and Jennifer Yin completed research “to examine whether there is an
association between high and excess compensation and executive perquisites”
(Liu, Yin 1). As I read the journal, I was under the impression that most
companies would likely pay the CEO a lower annual salary and give them
extensive perquisites. Liu and Yin’s research debunks my theory.
Liu and Yin provided three hypotheses:
“H1: Executive perquisites are positively
related to the level of CEO compensation.
H2: Executive perquisites are positively
related to the relative level of CEO compensation.
H3:
Executive perquisites are positively related to firm performance.”
Using comprehensive models, logit models and natural logarithms
Liu and Yin examined samples to achieve their conclusions. Hypothesis 1 was tested by examining “whether
the levels of CEO compensation components are higher in firms that offer higher
executive perquisites” (Liu, Yin 4). Their results upheld their hypothesis,
that there is a positive correlation between executive perquisites and the
total amount of executive pay.
Hypothesis 2 was tested using the same numbers as H1 but
a different equation. These results claimed that there was not a correlation
between a relative CEO’s pay and perquisites.
Hypothesis 3 was also thrown out. Their results showed “firms
that offer high perquisites do not have higher accounting and stock performance”
(Liu, Yin 8).
The results of
this research make evident the more base salary a CEO is receiving the more perquisites
they are offered. Even though in 2009
the SEC cracked down on the reporting of perquisites, CEO’s will always be held
under a microscope when it comes to their compensation.
Source:
Journal of the Academy of Business & Economics; 2011, Vol. 11 Issue 3, p260-268
Source:
