Financial Times - Lexiconhttp://lexicon.ft.comTerm of the Day from the Financial Times Lexiconen(PICS-1.1 "http://www.classify.org/safesurf/" L gen true for "http://www.ft.com/" r (SS~~000 1))&copy The Financial Times Ltd 2018 'FT' and 'Financial Times' are trademarks of The Financial Times Ltd. See http://www.ft.com/servicestools/help/terms#legal1 for the terms and conditions of reuse.client.support@ft.comTue, 16 Jun 2009 01:42:55 +0100Tue, 23 Jan 2018 12:43:38 GMTNewspapers15http://lexicon.ft.comhttp://lexicon.ft.comFinancial Timeshttp://im.media.ft.com/m/img/rss/RSS_Default_Image.gifhttp://lexicon.ft.compay-performance sensitivityhttp://lexicon.ft.com/Term?term=pay-performance sensitivity<p>This is a measure to find out if a chief executive is compensated appropriately according to how well s/he runs the company. Pay-performance sensitivity is the change in a chief executive's payoff that is associated with a given performance of the company that s/he leads.</p> <p>In its simplest incarnation, the pay-performance sensitivity is the correlation between a chief executive pay and stock return a cross a large number of chief executives and their companies.</p> <p>Pay-performance sensitivity is measured in a variety of ways. One is the dollar increase in a chief executive's wealth associated with a 1,000 dollar increase in the firm’s <a title="market capitalisation definition from FT Lexicon" href="http://lexicon.ft.com/Term?term=market-capitalisation" target="_blank">market capitalisation</a>. Another is the dollar increase or the percentage increase in a chief executive's wealth associated with a 1% equity return or stock return.</p> <p>Pay-performance sensitivity measures are used as indicators of the quality of <a title="corporate governance definition from FT Lexicon" href="http://lexicon.ft.com/Term?term=corporate-governance" target="_blank">corporate governance</a>.  Everything else equal, a larger sensitivity is sign of a better alignment between the chief executive incentives and the interest of his/ her shareholders.  Sensitivity is larger when the pay responds more to changes in performance.</p> <p><strong>Example</strong><br />In their research paper "Executive Compensation: Facts", Gian Luca Clementi and Thomas Cooley, at NYU Stern School of Business, carried out calculations on compensation data for chief executives of US publicly traded companies.</p> <p>Over the period between 1993 to 2008, a 1% increase in market capitalisation was associated with a 1.14% median increase in a chief executive's wealth.</p> <p><strong>Reference</strong><br />Clementi, Gian Luca and Cooley, Thomas F., Executive Compensation: Facts (October 6, 2009). FEEM Working Paper No. 89.2010.</p> <p><em>Source: Gian Luca Clementi, assistant professor of economics, NYU Stern School of Business</em></p>Wed, 18 May 2011 16:05:26 +0100<p>This is a measure to find out if a chief executive is compensated appropriately according to how well s/he runs the company. Pay-performance sensitivity is the change in a chief executive's&nbsp;payoff that is associated with a given performance of the company that s/he leads.</p> <p>In its simplest incarnation, the pay-performance sensitivity is the correlation between a chief executive pay and stock return a cross a large number of chief executives and their companies.</p> <p>Pay-performance sensitivity is measured in a variety of ways. One is the dollar increase in a chief executive's wealth associated with a 1,000 dollar increase in the firm&rsquo;s <a title="market capitalisation definition from FT Lexicon" href="http://lexicon.ft.com/Term?term=market-capitalisation" target="_blank">market capitalisation</a>. Another is the dollar increase or the percentage increase in a chief executive's wealth associated with a 1% equity return or stock return.</p> <p>Pay-performance sensitivity measures are used as indicators of the quality of <a title="corporate governance definition from FT Lexicon" href="http://lexicon.ft.com/Term?term=corporate-governance" target="_blank">corporate governance</a>. &nbsp;Everything else equal, a larger sensitivity is sign of a better alignment between the chief executive&nbsp;incentives and the interest of his/ her shareholders. &nbsp;Sensitivity is larger when the pay responds more to changes in performance.</p> <p><strong>Example</strong><br />In their research paper "Executive Compensation: Facts", Gian Luca Clementi and Thomas Cooley, at NYU Stern School of Business, carried out calculations on compensation data for chief executives of US publicly traded companies.</p> <p>Over the period between 1993 to 2008, a 1% increase in market capitalisation was associated with a 1.14% median increase in a&nbsp;chief executive's&nbsp;wealth.</p> <p><strong>Reference</strong><br />Clementi, Gian Luca and Cooley, Thomas F., Executive Compensation: Facts (October 6, 2009). FEEM Working Paper No. 89.2010.</p> <p><em>Source:&nbsp;Gian Luca Clementi, assistant professor of economics, NYU Stern School of Business</em></p>