Executive Compensation: New vs. Old Economy and the Impact of NASDAQ Crash and Sarbanes Oxley Act

Abstract

This is a new study which examines whether the determinants and the forms of compensation in new versus old economy US firms are the same over time and if the structure of compensation for executives in both groups changes after the NASDAQ crash and the enactment of the Sarbanes-Oxley act.The results reveal that the new economy executives receive, on average, much more than the executives from the old economy, primarily due to stock options, but in the last few years the difference in compensation between the executives of both groups is decreasing.We find that the NASDAQ crash and the Sarbanes-Oxley act had a significant impact upon the structure of the components of executive compensation in both new and old economy firms. Firms in both groups have reduced the use of stock options and have instead increased the use of bonuses and restricted stocks.We also find that the factors that explain executive compensation in new and old economy firms are generally different, and in the case of the variables that are the same, like firm size component, the intensity of the factors is different.