Reference no: EM131168010
In a study published in 1985 in Business Horizons, Platt and McCarthy employed multiple regression analysis to explain variations in compensation among the CEOs of large companies. (Although the data set is old, we suspect the results would be similar with more current data.) Their primary objective was to discover whether levels of compensations are affected more by short-run considerations-"I'll earn more now if my company does well in the short run"-or long-run considerations-"My best method for obtaining high compensation is to stay with my company for a long time." The study used as its dependent variable the total compensation for each of the 100 highest paid CEOs in 1981. This variable was defined as the sum of salary, bonuses, and other benefits (measured in $1000s).
The following potential explanatory variables were considered. To capture short-run effects, the average of the company's previous five years' percentage changes in earnings per share (EPS) and the projected percentage change in next year's EPS were used. To capture the long-run effect, age and years as CEO, two admittedly correlated variables, were used. Dummy variables for the CEO's background (finance, marketing, and so on) were also considered. Finally, the researchers considered several nonlinear and interaction terms based on these variables. The best fitting equation was the following:
Total Compensation = -3943 + 898.7 Wan, as CEO
+9.28 (Years as CE0)2 - 17.19 Years as CEO Age
+ 88.27 Age + 867.4 Finance
(The last variable is a dummy variable, equal to 1 if the CEO had a finance background, 0 otherwise.) The corresponding R 2 was 19.4%.
a. Explain what this equation implies about CEO compensations.
b. The researchers drew the following conclusions. First, it appears that CEOs should indeed concentrate on long-run considerations-namely, those that keep them on their jobs the longest.
Second, the absence of the short-run company related variables from the equations helps to confirm the conjecture that CEOs who concentrate on earning the quick buck for their companies may not be acting in their best self-interest.
Finally, the positive coefficient of the dummy variable may imply that financial people possess skills that are vitally important, and firms therefore outbid one another for the best financial talent. Based on the data given, do you agree with these conclusions?
c. Consider a CEO (other than those in the study) who has been in his position for 10 years and has a financial background. Predict his total yearly compensation (in $1000s) if he is 50 years old and then if he is 55 years old. Explain why the difference between these two predictions is not 5(88.27), where 88.27 is the coefficient of the Age variable.
|
Does it make us ponder the idea if the man on the street
: Our Founding Fathers may have had something when they stated that "all men are created equal". This is likely true in many respects; however, does it make us ponder the idea if the man on the street really equal to the judge deciding a Supreme Co..
|
|
True population proportion of consumers
: Calculate the 95% confidence interval for the true population proportion of consumers who like the ads. Calculate the 90% confidence interval for the true population proportion of consumers who like the ads. You would like your margin of error to be ..
|
|
What is purpose and significance of a county general plan
: What is the purpose and significance of a county or city general plan? Do you agree with the seven required general plan elements? Should other elements be required? Why/why not? If you believe additional plan elements are required, what are they ..
|
|
System of senior centers
: The City of Tampa, Florida, runs a system of senior centers where older citizens of the city can obtain services, information, and opportunities for social interaction. The city government is interested in conducting a user satisfaction survey of ..
|
|
Explain what this equation implies about ceo compensations
: Explain what this equation implies about CEO compensations.- Predict his total yearly compensation (in $1000s) if he is 50 years old and then if he is 55 years old.
|
|
Find all possible solutions for the problems
: A gym purchased 2-pound weights and 5-pound weights for a total of 40 pounds of weights in all. What are the possibilities for the number of each kind of weight purchased by the gym if at least one of each kind of weight was purchased?
|
|
Comparative brightness of two red dyes
: To test the comparative brightness of two red dyes, nine samples of cloth were taken from a production line and each sample was divided into two pieces. One of the two pieces in each sample was randomly chosen and red dye 1 applied; red dye 2 was ..
|
|
What is the difference between moral and legal reasoning
: Mr. Trident is arguing that the hospital has violated his 14th Amendment right to due process. What part of the 14th Amendment is he referring to in his argument?
|
|
Find all nonnegative integer values for x and y
: Find all nonnegative integer values for x and y that satisfy the equation 740x + 1295y = 18,500, and determine the possible computer purchases for the department.
|