Two Essays on Executive Pay and Firm Performance

Two essays of this dissertation study the relationship between executive compensation and firm performance. These essays analyze both compensation level and compensation structure, and focus not only on CEO compensation but also on Top Management Team (TMT) compensation as well as Chief Financial Officer (CFO) compensation. Methodologically, these essays use different regression techniques to explore the nature of time series over cross sections of executive compensation data in order to find a reliable relationship between executive compensation and firm performance. The first essay investigates the TMT compensation - firm performance relationship and finds that the compensation dispersion among TMT members is positively and statistically associated with firm performance measured by Tobin\u27s Q. This result strongly supports the tournament effect hypothesis and not the equity fairness hypothesis. The effect of TMT total compensation on firm performance is also positive and significant, even after controlling for CEO compensation. The second essay is one of the first studies investigating how CFO pay structure relates to firm performance and finds a positive and significant relationship between CFO stock options and firm performance. Even more, the impact of CFO pay structure is statistically stronger than the effect of CEO compensation structure