Cost Management: A Strategic Emphasis 7th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 19

Compensation; Regression Analysis; Spreadsheet Application Many people ask, "Are executives worth their very high pay " As noted in the chapter, this is a difficult question to answer because the benefits an effective executive brings to the company are hard to measure. One thing we can do, however, is to see if changes in executive pay are correlated with changes in company performance. If pay increases when company performance increases, and vice versa, then this would be an indication that pay practices are aligned with the interests of shareholders. To study this question, we have data (from The New York Times, April 10, 2011) for the 30 highest paid chief executive officers (CEOs) in the United States. The data below include 29 of these 30 CEOs (because he was a new CEO in 2010, the change in compensation could not be determined for the fourth-ranked CEO, Michael D. White of DirecTV; therefore, he is not included):

In the above table, the change in compensation is measured as the percentage change in total compensation from 2009 to 2010; total return (our measure of company performance) is measured by the percentage change in stock price plus dividends.
Required Using regression and/or correlation analysis, examine the preceding data and determine whether there is a significant relationship between the change in compensation for these executives and the change in the company's performance. That is, from your analysis, does it appear that the CEOs' pay is aligned with shareholder interests Comment briefly on your findings.