CEO Compensation in Early-Stage Firms

Abstract

Prior studies on chief executive officer (CEO) compensation have mainly focused on large firms from a broad spectrum of industries. This study aims to provide further evidence on the determinants of CEO compensation for small, homogeneous firms. Using a sample of Australian early-stage mining exploration entities (MEEs) over the 2004−2017 period, we document a set of predictors of CEO compensation that are unique to this group of firms. First, fluctuations in commodity prices are found to be positively associated with CEO stock options value. Second, we find that signals of MEEs’ future prospects, conveyed through additions to and acquisition of capitalised exploration and evaluation expenditure, have positive impacts on CEO compensation. Third, proceeds from equity raisings indicate CEOs’ effort and skills to improve shareholder wealth, resulting in higher compensation. Lastly, we find some evidence supporting the relevance of non-executive directors’ advisory role over their monitoring role.