EXECUTIVE-COMPENSATION STRUCTURE, OWNERSHIP, AND FIRM PERFORMANCE

An examination of the executive compensation structure of 153 randomly -selected manufacturing firms in 1979-1980 provides evidence supportin g advocates of incentive compensation, and also suggests that the form rather than the level of compensation is what motivates managers to i ncrease firm value, Firm performance is positively related to the perc entage of equity held by managers and to the percentage of their compe nsation that is equity-based. Moreover, equity-based compensation is u sed more extensively in firms with more outside directors. Finally, fi rms in which a higher percentage of the shares are held by insiders or outside blockholders use less equity-based compensation.