This paper investigates the relation between firm performance preceding the Financial Crisis and their CEO compensation after the Crisis. We find a significant decrease in CEO compensation for firms that had bad performance prior to the Crisis, compared to those who performed well before the Crisis. This result remains after controlling for firm size, accounting performance, and year and industry fixed effects. The decrease in compensation seems to be derived from the drop in equity-based compensation. We conclude that boards are effective and considered the performance of the firm prior to the Crisis when they considered setting the compensation following the shock of the Crisis.
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