CEO Compensation

Carola Frydman · Dirk Jenter

53 citations0/0 files storedNational Bureau of Economic Research

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Corporate Finance and Governance Labor market dynamics and wage inequality Accounting and Organizational Management

Abstract

This paper surveys the recent literature on CEO compensation.The rapid rise in CEO pay over the past 30 years has sparked an intense debate about the nature of the pay-setting process.Many view the high level of CEO compensation as the result of powerful managers setting their own pay.Others interpret high pay as the result of optimal contracting in a competitive market for managerial talent.We describe and discuss the empirical evidence on the evolution of CEO pay and on the relationship between pay and firm performance since the 1930s.Our review suggests that both managerial power and competitive market forces are important determinants of CEO pay, but that neither approach is fully consistent with the available evidence.We briefly discuss promising directions for future research.

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References

1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1980Agency Problems and the Theory of the Firm 1979Moral Hazard and Observability 1990Performance Pay and Top-Management Incentives 1990Additional evidence on equity ownership and corporate value 1996Theory of the firm; managerial Behavior, Agency Costs, and Ownership Structure 2003Income Inequality in the United States, 1913-1998 1992The investment opportunity set and corporate financing, dividend, and compensation policies

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2017Finance and sustainability: From ideology to utopia 2012Mandatory IFRS Adoption and the Contractual Usefulness of Accounting Information in Executive Compensation 2015CEO pay-performance sensitivity in the South African context 2015Executive Pay Matters: Looking Beyond the CEO to Explore Implications of Pay Disparity on Non‐CEO Executive Turnover and Firm Performance 2016The Effect of High Power Financial Incentives on Excessive Risk-Taking Behavior: An Experimental Examination

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