Academic journal article Multinational Business Review

Are Canadian CEOs Compensated for International Responsibilities?

Academic journal article Multinational Business Review

Are Canadian CEOs Compensated for International Responsibilities?

Article excerpt


Relying on proprietary Canadian data, we determine a positive relationship between the level of Canadian CEO compensation and the existence of significant international components among a CEO's array of responsibilities. Our findings are consistent with agency and human capital theoretical arguments. Results imply that executive pay premiums should be anticipated and budgeted for in the planning and implementation of international ventures.


The literature on executive compensation is extensive; however, only a limited number of papers have studied the impact of international responsibilities on the compensation of CEOs. Ramcharran (2002, 141) has "laid the groundwork for further analyses of executive compensation within a global framework" by documenting significant relationships between CEOs' compensation and the scope and the profitability of the international operations of American based firms. Ramcharran's (2002) contribution is distind from existing research, which mainly documents relationships between corporate-wide firm scope and pay and/or between corporate-wide firm performance and pay. It remains unclear, however, whether the scope of international operations is an appropriate proxy for international responsibilities or for the entire firm's size, a limitation that leaves room for more research.

This paper adds to Ramcharran's contribution and the literature in several ways. First, we use a Canadian context instead of American, thereby broadening the scope of the research. Second, we use cross-sectional data from a large sample of firms of various sizes rather than longitudinal data from a limited sample of very large firms. Our results are consequently more generalizable to all firms as opposed to large firms only. Third, we rely on proprietary data from a large consulting firm instead of publicly-available data, which previous research has relied upon. This again improves the generalizability of the results to both private and publicly-traded firms, as opposed to the latter only. Fourth, we study target cash compensation,1 which reflects the board's ex ante intentions regarding the value of the CEO job rather than actual cash, which reflects the ex post assessment of the overall performance of the CEO (Indjejkian and Nanda 2002). Fifth, this study focuses on CEO compensation levels, which are meaningful without controlling for performance at target. This is a distinction from the majority of contemporary studies that analyze actual compensation changes. Finally, the structure of the proprietary databank allows us to focus on the impact of international responsibilities rather than the impact of the scope of foreign operations on the compensation of CEOs. The difference between the scope and responsibilities is an important distinction. For example, a CEO can expend significant effort in developing foreign operations while the scope of these nascent operations is not measurable. Conversely, consolidated financial statements can depict a company's foreign operations as considerable while the CEO's oversight responsibilities regarding foreign business can be relatively negligible. An example is a foreign sales office that has significant sales or assets, but requires limited time or effort on the part of the CEO.


Executive compensation has been the subject of academic scrutiny since the 1920s. The majority of studies on the amount of executive compensation examines the relationship between pay and company size and between pay and corporate performance. Three studies, Lewellen and Huntsman (1970); Masson (1971); and McGuire, Chiù, and Elbing (1962) pioneered in documenting the link between executive pay and the size of the corporation. Company sales were often used as a proxy for size. Company profits were generally used sparingly and then only as a control variable until pioneering studies, such as Ciscel and Carroll (1980) decoupled the impact of company size and performance on compensation because executives can pursue one at the expense of the other. …

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