Is CEO Pay Related to Performance in the U.S. Hospitality Industry?

Abstract

Due to the unique nature of the hospitality industry that entails higher competition, ease of entry and exit of firms, and geographic diversification, we hypothesize that CEO compensation in the hospitality industry will be higher and will also have higher pay-for performance sensitivity than in other industries. Using a comprehensive sample of firms in the hospitality and tourism (HT) industries, we find that CEO compensation depends upon firm size, Tobin’s Q, and CEO tenure. In addition, we find that compensation of HT firm CEOs is very sensitive to performance, using both measures- stock returns and return on assets. Interestingly we also find that HT firm CEOs earn as much as non-HT firm CEOs although HT firms are much smaller and underperform non-HT firms. Implications for theory and practice are discussed.