2002. “Geographic and Industrial Corporate Diversification: The Level and Structure of Executive Compensation

We explore the relation between corporate diversijication and CEO com-pensation. We document that geographic diversijication provides a com-pensation premium, while industrial diversijication is associated with lower levels of CEO pay. We also examine the effect of corporate diver-sijication on the structure and performance criteria of CEO compensation contracts. We find that both diversijication strategies are associated with a greater use of incentive-based compensation and with a greater reliance on market-based, rather than accounting-based measures of Jirm pe rform-ance. Finally, we address the question of whether shareholders reward CEOs for corporate diversijication. We document that while value-enhancing geographic diversijication is rewarded, non-value-enhancing industrial diversijication is penalized. 1