Origin of CEO and Compensation Strategy: Differences between Insiders and Outsiders
Yanadori, Yoshio; Milkovich, George T.
Increasingly, U.S. firms are hiring their new CEOs from outside the firms. This study investigates the differences in compensation between outsider CEOs and insider CEOs from three dimensions: pay level, pay and performance link, and pay mix. Our analyses show: (1) outsider CEOs are paid more than insider CEOs, (2) pay and performance link is very weak for outsider CEOs, and (3) compensation package for outsider CEOs emphasizes the use of stock options. While several factors (e.g., firm size, firm performance, CEO tenure, ownership structure) influence insider CEOs' pay, firm size is the only determinant of outsider CEOs' pay. Our results suggest we will be able to understand CEO compensation more accurately if we analyze CEOs from different origins (insiders, outsiders, founders) separately.
firms; outside; compensation; pay; performance; insider; CEO; stock; tenure; ownership