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Pay-for-performance efficiency of CEOs. In Chapter 1(p.
Chapter 12, Problem 31E(choose chapter or problem)
Pay-for-performance efficiency of CEOs. In Chapter 1(p. 4), we presented Forbes magazine’s “ExecutiveCompensation Scoreboard.” Forbes (April 13, 2011) determined which CEOs are worth their pay based on a comparison of the firm’s stock performance and the CEO’s annual salary. Data for 175 of the top performers are saved in the file. Some of the variables measured for each CEO include pay-for-performance efficiency rating (\(x_1\)), value of shares owned (\(x_2\)), age (\(x_3\)), and the CEO’s average salary over the past 5 years (y). (Recall that the lower the efficiency rating, the more the CEO is worth his/her pay.) Consider The first-order model \(E(y)=\beta_0+\beta_1x_1+\beta_2x_2+\beta_3x_3\).
a. Fit the model to the data and give the least squares prediction equation.
b. Conduct a test of overall model adequacy using \(\alpha\ =\ .05\).
c. Predict, with 95% confidence, the 5-year pay of a CEOwith \(x_1 = 173\), \(x_2 = +102.9\) million, and \(x_3 = 59\) years. (Note: These values represent the data for Sam Palmisano,CEO of IBM.) Interpret the result.
Questions & Answers
QUESTION:
Pay-for-performance efficiency of CEOs. In Chapter 1(p. 4), we presented Forbes magazine’s “ExecutiveCompensation Scoreboard.” Forbes (April 13, 2011) determined which CEOs are worth their pay based on a comparison of the firm’s stock performance and the CEO’s annual salary. Data for 175 of the top performers are saved in the file. Some of the variables measured for each CEO include pay-for-performance efficiency rating (\(x_1\)), value of shares owned (\(x_2\)), age (\(x_3\)), and the CEO’s average salary over the past 5 years (y). (Recall that the lower the efficiency rating, the more the CEO is worth his/her pay.) Consider The first-order model \(E(y)=\beta_0+\beta_1x_1+\beta_2x_2+\beta_3x_3\).
a. Fit the model to the data and give the least squares prediction equation.
b. Conduct a test of overall model adequacy using \(\alpha\ =\ .05\).
c. Predict, with 95% confidence, the 5-year pay of a CEOwith \(x_1 = 173\), \(x_2 = +102.9\) million, and \(x_3 = 59\) years. (Note: These values represent the data for Sam Palmisano,CEO of IBM.) Interpret the result.
ANSWER:Step 1 of 4
From the information, observed that Executive compensation scoreboard, determined which CEO’s worth their pay based on a comparisons of the firm’s stock performances and the CEO’s annual salary.
Consider 175 number of CEO’s and some of the variables measured for each CEO include pay-for-performance efficiency rating, value of the shares owned, age, and the CEO’s average salary over the past 5 years.
The MINITAB output for the regression analysis.
