Business Identity as a Determinant of CEO Compensation

Abstract

Using the Dow Jones Industrial Average (DJIA) as an identity of a company, the relationship between business identity and CEO compensation is investigated. The results show that the CEO compensation of a company responds to the identity change while the compensation of an added company gradually increases toward the level of the DJIA companies starting before the year of addition, the compensation change of a replaced company is delayed until the replacement year and dropped quickly. This paper has some implications and contributes to recognizing and suggesting remedies on problems and biases in corporate governance.