Yurko, Amy
(2014)
AN EMPIRICAL EXAMINATION OF CEO COMPENSATION AND INTERNAL REVENUE CODE SECTION 162(m).
Doctoral Dissertation, University of Pittsburgh.
(Unpublished)
Abstract
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.
Share
| Citation/Export: |
|
| Social Networking: |
|
Details
| Item Type: |
University of Pittsburgh ETD
|
| Status: |
Unpublished |
| Creators/Authors: |
|
| ETD Committee: |
|
| 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 |
| URI: |
http://d-scholarship.pitt.edu/id/eprint/22717 |
Metrics
Monthly Views for the past 3 years
Plum Analytics
Actions (login required)
 |
View Item |
![[feed]](/images/feed-icon-32x32.png){kind=icon}