Executive compensation and managerial incentives: A comparison between Canada and the United States

This paper compares executive pay-performance sensitivities between Canadian firms and US firms. Examining the data for 365 Canadian firms and 675 US firms over the years 1991-1994, we find that the pay-performance sensitivity associated with direct pay and stock ownership is smaller in Canadian firms than in US firms but that the difference diminishes as firm size increases. We also find that during this period Canadian firms underperformed US firms and Canadian CEOs were paid substantially lower than were their US counterparts. Our findings are consistent with the argument that the pay-performance relationship, depending on the intensity of economic regulation, affects corporate performance.