You Can Pay Me Now and You Can Pay Me Later: The Persistent Effects of Firm Performance on Executive Compensation

The results of this study are that important intertemporal effects exist in the compensation-performance relation. This finding is important to the design of empirical studies of compensation and performance. The results further support the idea that the future income implications of good performance are as important, if not more important, than the contemporaneous effect. This finding has interesting public policy implications. That is, attempting to strengthen the pay-performance sensitivity by monitoring the contemporaneous relation may be dysfunctional.