$1 CEO Salaries and R&D Spending as a Form of Extreme Incentive Compensation and Investor Signaling

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Date

2019

Authors

Gardner, Brooke L.

Journal Title

Journal ISSN

Volume Title

Publisher

University of Oregon

Abstract

While gaining popularity in mainstream media, the $1 CEO salary is a trend whose motives and impact remain largely misunderstood. This paper examines a dataset of 155 companies that have implemented the $1 salary. Statistical testing is used to analyze the relationship of $1 salaries to several variables including company financial measures and descriptive CEO attributes. The trends in research and development spending, capital expenditures, and stock price that result before and during the $1 salary period are also examined. The goal of this research is to understand the relationship between $1 CEO salaries and long-term spending in the form of research and development and capital expenditures. The secondary goal is to understand how the $1 salary acts as a form of extreme incentive compensation and investor signaling by using long-term spending as a proxy for managerial belief in future firm performance. The findings in this thesis suggest that $1 CEOs have strong beliefs in their firms as demonstrated by the $1 salary and increases to long-term spending. However, investors do not appear to share this same belief in the firm which suggests the $1 salary may be an ineffective attempt at signaling.

Description

42 pages

Keywords

Accounting, Accounting, CEO, Incentive Compensation, Signaling, R&D

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