Contemporary Accounting Research Vol. 22 No. 3 (Fall 2005) pp. 519–47 © CAAA CEO Compensation and Stakeholders’ Claims * ALKA ARORA, University of Wisconsin –Whitewater PERVAIZ ALAM, Kent State University Abstract The traditional view that a corporation exists solely to serve the interests of the firm’s shareholders has given way to a changing view that recognizes the importance of corporate constituents in addition to shareholders. Prior studies demonstrate a significant association between the sensitivity of CEO compensation and a firm’s stock prices. However, the asso- ciation between CEO compensation and the claim of other primary stakeholders (customers, employees, suppliers) has not been examined. The purpose of this study is to investigate whether the adoption of long-term incentive plans aligns the interest of the CEO with the interest of the primary stakeholders in the firm. Using the fixed-effect regression, our results indicate a significant association between the change in CEO compensation and the claims of the customers, shareholders, and employees. We contribute to the literature by demon- strating that the managers are accountable not only to the shareholders but also to primary stakeholders. Keywords CEO compensation; Corporate constituents; Long-term incentive plans; Stakeholders JEL Descriptors G30, J33, M41, M52 Rémunération des chefs de la direction et revendications des parties prenantes Condensé Foncièrement, la majorité des études économiques empiriques portant sur la rémunération des cadres présupposent que les régimes de rémunération des cadres sont adoptés pour harmoniser les intérêts de la direction et ceux des actionnaires. Bien que les recherches comptables précédentes fassent état d’une relation significative entre les changements dans la rémunération des chefs de la direction et la performance du cours de l’action de l’entre- prise (par exemple, Murphy, 1986), la relation entre la rémunération des chefs de la direction et les revendications des autres parties prenantes de l’entreprise a essentiellement été ignorée. Les ouvrages de gestion définissent les parties prenantes comme étant des personnes ou des groupes qui possèdent ou revendiquent des droits de propriété ou des intérêts dans une * Accepted by Peter Clarkson. We are especially thankful to Peter Clarkson and two anonymous reviewers whose comments were instrumental in developing the paper. We would like to thank Peter Barton, Christine Clements, Robert Gruber, Rosemerry Rudesal, and Roy Weatherwax for their support. We also appreciate Jan Winchell’s computational assistance.