Li (2010)

Li, Zhichuan. “No. 2 Person: pay gap and firm performance.” Working paper (W.P. Carey School of Business, Arizona State University), March 18, 2010.

From the author’s abstract: “While the CEO has always been the focus in corporate finance research, no literature has been dedicated to the No.2 person. No.2s should not be ignored, not only because they are the second most important executives in each firm, but also because their relationships with the CEOs can have broad implications. In this paper, I use the mutual monitoring framework to examine their characteristics, as compared to the CEOs’, and the compensation gap between them and the CEOs. Using the gap as a proxy for the monitoring capacity of the No.2, I provide the first empirical evidence on the relationships between this gap and executive characteristics, firm information, and other governance measures. I find the monitoring from the No.2 person is a substitute for other governance mechanisms, and has a positive impact on firm performance especially under weak governance.”