total 91 pages

Kevin J. Murphy
Marshall School of Business
University of Southern California

Abstract
This paper summarizes the empirical and theoretical research on executive compensation and provides a comprehensive and up-to-date description of pay practices (and trends in pay practices) for chief executive officers (CEOs). Topics discussed include the level and structure of CEO pay (including detailed analyses
of annual bonus plans, executive stock options, and option valuation), international pay differences, the pay-setting process, the relation between CEO pay and firm performance (“pay-performance sensitivities”), the relation between
sensitivities and subsequent firm performance, relative performance evaluation, executive turnover, and the politics of CEO pay.