The effect of political contributions on CEO compensation.

• Main Authors: Mok, Alan Zhen Tao., Tan, Nicholas Hua Shang., Yeo, Desmond Jan Hao.
• Other Authors: Suman Banerjee
• Format: Final Year Project
• Language: English
• Published: 2013
• Subjects: DRNTU::Business::Finance::Corporate governance
• Online Access: http://hdl.handle.net/10356/51531
• Institution: Nanyang Technological University

In recent years, companies in United States (US) have attracted significant criticism over Chief Executive Officer (CEO) compensation plans. With the rise of political involvements in today’s world, researchers have shown that establishing and nurturing political connections is an important determinant in improving the firm’s performance that may explain the rise in CEO Compensation. This study thus examines the impact of political connections on CEO Compensation. From the sample of organizations listed on the Standard & Poor 500 Index and across a time period of 1997 – 2012, we analysed the relationship between CEO Compensation and Political Connections with Political Contributions as the proxy for Political Connections. The findings reveal that both individual and Political Action Committees (PAC) contributions has a significant positive effect on CEO Compensation both for fixed Total Current Compensation (TCC) and variable Total Direct Compensation (TDC) components of CEO compensation whereas Soft Money contributions are insignificant in explaining CEO Compensation. Overall the findings support the view that Political Connections are important determinants of CEO Compensation.