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Yurko, Amy (2014) AN EMPIRICAL EXAMINATION OF CEO COMPENSATION AND INTERNAL REVENUE CODE SECTION 162(m). Doctoral Dissertation, University of Pittsburgh. (Unpublished)

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Congress enacted §162(m) based upon the assumption that CEOs controlled their own compensation design. Compliance with §162(m) preserves the firm’s tax deduction for CEO compensation, but limits CEO salary and generally increases the use of risky incentives. Therefore, ceteris paribus, I predict that CEOs prefer and attempt to use their influence to secure §162(m) noncompliant compensation. To evaluate how CEOs influence firm §162(m) noncompliance, I examine the factors related to firm §162(m) noncompliance, CEO compensation design trends at firms affected by §162(m), and how the SEC’s 2003 independence governance requirements and 2006 compensation disclosure mandate affected the CEO power-§162(m) noncompliance relation.
First, I find that CEO power is positively related to firm §162(m) noncompliance behavior, suggesting that CEOs use their influence to increase firm noncompliance. However, I also find that noncompliance with §162(m) is generally related to the economic determinants of CEO compensation design in a manner consistent with agency theory, and do not find consistent evidence that noncompliance is decreasing in the quality of firm governance. Therefore, the evidence does not suggest that §162(m) noncompliance is systematically the consequence of inefficient CEO influence enabled by poor quality governance, consistent with managerial power theory. I find that firm §162(m) noncompliance behavior is generally explained by agency theory.
Second, I document that CEO salaries at firms affected by §162(m) tended to remain relatively flat with evidence of an informal $1 million benchmark and decreased as a percentage of total compensation. Further, the 2003 SEC board independence regulation weakened the positive relation between CEO power and CEO salary in excess of $1 million, noncompliant with §162(m), for those firms with lower pre-2003 independent governance processes. These findings suggest that §162(m) weakened CEO influence over salary levels.
Third, I provide evidence that the 2006 disclosure mandate strengthened the CEO power-§162(m) noncompliance relation, instead of weakening it as arguably intended. In addition, I do not find evidence that §162(m) slowed the growth of CEO total compensation levels or increased its relation to firm performance from 1994 through 2012. These findings suggest that that §162(m) did not reduce CEO influence over their total compensation arrangements.


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Item Type: University of Pittsburgh ETD
Status: Unpublished
CreatorsEmailPitt UsernameORCID
Yurko, Amyayurko@katz.pitt.eduAJY13
ETD Committee:
TitleMemberEmail AddressPitt UsernameORCID
Committee ChairEvans, Harryjhe@katz.pitt.eduJHE
Committee MemberBalsam,
Committee MemberFeng, Meimfeng@katz.pitt.eduMEF23
Committee MemberNagarajan, Nandunagaraja@katz.pitt.eduNAGARAJA
Committee MemberSrinivasan, Dhinudhinus@katz.pitt.eduDHINUS
Date: 25 September 2014
Date Type: Publication
Defense Date: 9 July 2014
Approval Date: 25 September 2014
Submission Date: 13 August 2014
Access Restriction: No restriction; Release the ETD for access worldwide immediately.
Number of Pages: 172
Institution: University of Pittsburgh
Schools and Programs: Joseph M. Katz Graduate School of Business > Business Administration
Degree: PhD - Doctor of Philosophy
Thesis Type: Doctoral Dissertation
Refereed: Yes
Uncontrolled Keywords: IRC Section 162(m); CEO Compensation; Tax Deductibility; Corporate Governance; Board Independence; Compensation Disclosures
Date Deposited: 25 Sep 2014 19:53
Last Modified: 15 Nov 2016 14:23


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