A study of CEO compensation and firm performance across companies with high, medium and low managerial discretio

Is there a significant difference across the three levels of management discretion with regard to CEO compensation, firm performance and stock performance? This is a summation of the research questions for this study. To answer the research questions in this study data was gathered on a sample of 156 publicly traded U.S. companies. The data was for a three-year period, 1996 through 1999. It was obtained from several secondary sources: Standard & Poor's COMPUSTAT tapes, Hoovers annual fillings reports, corporate annual reports and 10K and 10Q reports filed with the SEC.;The independent variable used in the study was the level of management discretion as determined by earlier research by Hambrick and Abrahamson (1995). There were five dependent variables engaged in the study: CEO salary plus bonus, Corporate profits (ROE), Net operating profit rate of return, Shareholder return, and three year average price/earnings ratio.;Using the managerial discretion rankings of 71 industries by Hambrick and Abrahamson 1995, the investigator randomly selected 52 companies from the top 10, middle 10, and bottom 10 publicly traded companies. Since COMPUSTAT was complete there was no missing data. All hypotheses were tested using One-Factor Analysis of variance. For each level of discretion the firm that ranked highest and the firm that ranked lowest was discarded to address the impact of outliers.;The results of the One-Factor Analysis of variance supported four of five hypotheses. Hypotheses five was rejected mainly due to serious outliers that were not addressed using One-Factor Analysis of variance. This study supports Hambrick and Finkelsteins' previous research, finding significant differences across the levels of managerial discretion; however, one of the interesting side results was the distribution between high, medium and low discretion in several of the tested hypotheses.