Determining Compensation for CEOs

Chief executive officers for large companies receive widely varying amounts of compensation for their work. Why is the range so wide? What are some of the variables that seem to contribute to the diversity of CEO compensation packages?

As a starting place, one might examine the role of company size as measured by sales volume, number of employees, number of plants, and so on in determining CEO compensation. It could be argued that CEOs of larger companies carry larger responsibilities and hence should receive higher compensation. Some researchers believe CEO compensation is related to such things as industry performance of the firm, percentage of stock that has outside ownership, and proportion of insiders on the board. At least a significant proportion of CEOs are likely to be compensated according to the performance of their companies during the fiscal period preceding compensation. Company performance can be measured by such variables as earnings per share, percentage....