www.theinternationaljournal.org > RJEBS: Volume: 03, Number: 6, April-2014 Page 86 An Overview of Empirical Research on CEO Pay-Firm Performance Jeeta Sarkar, Former Research Scholar, Department of Business Administration (HR), The University of Burdwan Abstract In last decade or so, the level of CEO compensation in India and abroad has risen stratospherically to such height that has grabbed newspaper headlines. For example, data released by Hay Group, a global management Consultancy for the year 2011-2012 reveals that the average CEO's compensation in India crossed Rs 2 crore marks. Such high level of CEO compensation raises the obvious question whether steep rise in CEO pay has any bearing on firm performance. The present study provides an overview of empirical studies that explore the relationship between CEO compensation and company performance. The purpose of this section is to find out which methodology should be used to investigate the relationship between the remuneration of CEOs and the performance of companies. Introduction The present paper deals with an overview of empirical studies that explore the relationship between CEO compensation and company performance. In providing a structured overview of the empirical studies it is necessary to make choices in which studies are discussed and which not. I use several criteria to delimitate the overview. First, studies should refer to Europe or the United States. Furthermore, the studies should be based on listed companies in a cross-section of industries. Research papers that are not discussed in this section include a study by Zhou (2000) for Canadian firms, which found a very weak but positive relationship between pay and performance. Firth et al. (2006) finds a similar result for Chinese listed companies. Kato and Kubo (2006) confirm the positive relationship between CEO pay and company performance for a sample of listed and non-listed Japanese companies. Moreover, performance of the company should be measured in current financial performance measures. The sample should include CEOs. Another criterion is that the empirical studies should explain (components of) compensation with performance. Moreover, studies should be recent. Literature published before 1998 will not be discussed. An exception is the influential study of Jensen and Murphy (1990). The articles are selected with the academic search engine of Google, JSTOR and the database of the Social Science Research Network (SSRN). The selected papers and their main findings are presented in table 1 on the next page. The purpose of this section is to find out which methodology should be used to investigate the relationship between the remuneration of CEOs and the performance of companies. The discussed studies can be used to find out what is best practice in conducting empirical research of the pay-performance relationship. Studies on CEO Pay-performance relationship-International and National Many academic studies have been conducted for testing the correlation between pay (as measured by salary and bonus) and changes in the market value of the firm. Though the most influential study on executive pay-performance relationship was conducted by Jensen and Murphy (1990), but it won’t be wrong to say that the first study was conducted by Marschak and Andrews, in 1944 and reported that it is likely that CEO compensation and firm performance are correlated with the current realization of the unobserved firm-specific effects.