Dynamics and Convergence in Chief Executive Officer Pay

This study offers the first investigation of dynamics and convergence in CEO total, bonus and long-term incentive pay in Australia’s largest corporations. Utilizing dynamic panel estimators, we find robust evidence of the dynamic nature of CEO pay determination. CEO pay is positively associated with lagged performance, with the largest pay-performance effect emerging for long-term incentive pay. We also show that by ignoring dynamics, prior studies may have understated the size of pay-performance effects. Analysis of convergence shows a clear pattern of catch up among firms. We conclude that both dynamic adjustments and convergence have contributed to large CEO pay increases in recent decades