Executive Compensation Structure and Firm Performance in the U.S. Restaurant Industry: An Agency Theory Approach

Abstract

Executive compensation represents a small fraction of firm value, however, the way in which the dependence of compensation on firm performance is structured can have a significant effect on firm performance. The purpose of this study is to investigate the relationship between executive compensation structure and firm performance in the U.S. restaurant industry. Using executive compensation data for publicly traded restaurant firms for the period 1999–2010, our results suggest that compensation in the form of bonuses and nonequity affects restaurant firm performance positively. Results also reveal that compensation in the form of salary affects restaurant firm performance negatively. Findings of this study suggest that restaurant firms should use salary with discretion, and use bonuses and deferred pay to increase firm performance.

Keywords:

• executive compensation structure
• agency theory
• restaurant industry