The Power of Pen and Executive Compensation
ARTICLE IN PRESS
Journal of Financial Economics 88 (2008) 1–25 www.elsevier.com/locate/jfec The power of the pen and executive compensation$
John E. Corea, Wayne Guaya,Ã, David F. Larckerb a The Wharton School, University of Pennsylvania, Philadelphia, PA 19104, USA b Graduate School of Business, Stanford University, Stanford, CA 94305, USA
Received 28 October 2005; received in revised form 20 March 2007; accepted 4 May 2007
Available online 5 December 2007
Abstract
We examine the press’ role in monitoring and influencing executive compensation practice using more than 11,000 press articles about CEO compensation from 1994 to 2002. Negative press coverage is more strongly related to excess annual pay than to raw annual pay, suggesting a sophisticated approach by the media in selecting CEOs to cover. However, negative coverage is also greater for CEOs with more option exercises, suggesting the press engages in some degree of
‘‘sensationalism.’’ We find little evidence that firms respond to negative press coverage by decreasing excess CEO compensation or increasing CEO turnover. r 2007 Elsevier B.V. All rights reserved.
JEL classifications: G32; G34; J33; M41
Keywords: Press; Media; Executive compensation; Corporate governance
1. Introduction
With the possible exception of major accounting frauds (e.g., WorldCom, Enron, etc.), there are few topics that are more pervasive and produce bigger headlines in the business press than executive compensation. The debate about executive compensation tends to focus on the overall level of compensation (e.g., relative to workers in the US or to executives in other countries), the rate of increase (e.g., relative to inflation or stock price returns), and the form of payment (e.g., stock options). Although there is extensive academic research on the determinants of executive compensation, there is little empirical evidence on the role of the popular and business press as a potential monitor of
Journal of Financial Economics 88 (2008) 1–25 www.elsevier.com/locate/jfec The power of the pen and executive compensation$
John E. Corea, Wayne Guaya,Ã, David F. Larckerb a The Wharton School, University of Pennsylvania, Philadelphia, PA 19104, USA b Graduate School of Business, Stanford University, Stanford, CA 94305, USA
Received 28 October 2005; received in revised form 20 March 2007; accepted 4 May 2007
Available online 5 December 2007
Abstract
We examine the press’ role in monitoring and influencing executive compensation practice using more than 11,000 press articles about CEO compensation from 1994 to 2002. Negative press coverage is more strongly related to excess annual pay than to raw annual pay, suggesting a sophisticated approach by the media in selecting CEOs to cover. However, negative coverage is also greater for CEOs with more option exercises, suggesting the press engages in some degree of
‘‘sensationalism.’’ We find little evidence that firms respond to negative press coverage by decreasing excess CEO compensation or increasing CEO turnover. r 2007 Elsevier B.V. All rights reserved.
JEL classifications: G32; G34; J33; M41
Keywords: Press; Media; Executive compensation; Corporate governance
1. Introduction
With the possible exception of major accounting frauds (e.g., WorldCom, Enron, etc.), there are few topics that are more pervasive and produce bigger headlines in the business press than executive compensation. The debate about executive compensation tends to focus on the overall level of compensation (e.g., relative to workers in the US or to executives in other countries), the rate of increase (e.g., relative to inflation or stock price returns), and the form of payment (e.g., stock options). Although there is extensive academic research on the determinants of executive compensation, there is little empirical evidence on the role of the popular and business press as a potential monitor of
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