Do executives get more pay prior to deteriorations of firm performance?

I examine whether executives obtain more direct compensation from their companies in anticipation of deteriorations of firm performance. Using compensation data from S&P 1500 firms, I find that top managers receive more direct compensation in anticipation of the next year???s poor performance. The negative association between compensation and future performance is most significant in firm-years in which insiders sell large amounts of stock, or in which top managers exercise large amounts of options, both of which are signals of top managers??? foreknowledge about future poor performance. Moreover, this phenomenon is more significant in firms with more entrenched CEOs. I also find intensive scrutiny from active shareholders effectively mitigates such behavior. This finding supports the managerial rent-extraction, rather than efficient contracting, explanation for the negative association between current pay and future performance. Consequently, such rent-seeking behavior is followed by even poorer long-term operating and stock performance in the subsequent five years