When is Corporate Reputation Related to CEO Compensation?

This study examines the relationship between corporate reputation and CEO compensation. It is assumed that CEOs attempt to use corporate reputation to justify increases in their annual compensation. Based on agency theory and signaling theory, we predict a positive relationship between corporate reputation and CEO compensation but only during periods of economic recovery. Using a subset of Fortune’s “Most Admired” companies that retained their CEO’s through three years of recession followed by three years of recovery, this study demonstrates that corporate reputation is significantly associated with CEO compensation during periods of economic recovery but not during periods of economic recession.