CEO compensation is another important economic variable in need of explanation and prediction. This chapter provides three models of prediction of CEO compensation. 1 The first model deals with the effects of personal attributes and performance on the level of CEO compensation. The second model deals with the determinants of executive tenure in large U.S. firms. Finally, the third model deals with the impact of CEO experience, nature of deviation from the analysts’ forecasts, and accounting and market measures of performance.
The purpose of this section is to expand on the nature of the evidence on the determinants of the level of compensation to CEOs of American industrial corporations. Most research to date has focused on testing the relative importance of measures of firm performance as determinants of executive salaries, in general, and those of CEOs, in particular. This study proposes that the personal attributes of CEOs may have an important role in the determination of CEO compensation either through direct or interaction effects. Drawing on unique data on the personal attributes of CEOs from a sample of Fortune 500 firms, the study addresses the question, how do the personal attributes of CEOs affect the determinants of CEO compensation?