THE EFFECT OF NON-RECURRING GAINS AND LOSSES ON THE CEO’S COMPENSATION

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Abstract

In this study we examine the impact of ‘Non-recurring Items (NRI),’ reported on the income statements of public companies, on the CEOs’ pay-performance relationship. Using panel (timeseries cross-sectional) data for 435 companies from a wide range of industries over the period 1998-2002, we first revisit the pay-performance model estimated by Gaver and Gaver (1998). We then extend the Gaver and Gaver (1998) model by analyzing a) the impact of NRI on total (cash plus non cash) compensation of CEOs, b) the role of firm size, and c) the influence of multiple NRI reporting by the same firm. Our results indicate that the Gaver and Gaver (1998) findings are robust to the inclusion of firm size in the case of cash compensation. This, however, does not hold in the case of total compensation. The pay-performance model for cash compensation and total compensation yields significantly different results with respect to NRI as well. Our results indicate that multiple reporting of NRI by the same firm affects the parameter estimates. Finally, we examine the issue of parameter heterogeneity using the quantile regression approach, and report findings which provide some evidence that parameter heterogeneity may deserve attention in executive compensation studies.

Keywords: CEO Compensation, Quantile Regression, Agency Model, Non-recurring Items, Pay for Performance

How to cite this paper: Nourayi, M. M., Canarella, G., & Krishnan, S. (2006). The effect of non-recurring gains and losses on the CEO’s compensation. Corporate Ownership & Control, 3(3-1), 161-177. https://doi.org/10.22495/cocv3i3c1p1