“What a difference a day makes (in executive compensation)” by Professor Bjorn Jorgensen
Professor Bjorn Jorgensen
Professor of Accounting and Financial Management
Department of Accounting
London School of Economics and Political Science
We document curious regularities in executive compensation related to the calendar. Controlling for performance, firms using 52/53-week financial reporting conventions increase CEO pay in 53-week years, consistent with rewarding the CEO for working an additional week relative to the previous (52-week) year. However, firms do not appear to revert CEO compensation in the subsequent year when the CEO works 52 weeks again. We consider the roles that governance and shareholder monitoring play in these relations. We find evidence consistent with weaker governance accentuating the 53rd week impact and monitoring mitigating the impact. The 53-week findings are robust various specifications and to controlling for the firms’ financial performance which prior literature documents is affected by longer reporting periods. Overall, the results are inconsistent with efficient contracting, and at least partially consistent with rent extraction in executive compensation. We also consider whether CFO pay is similarly impacted by fiscal year length changes and do not find evidence thereof.