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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/25977
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| Title: | The Good, the Bad and the Lucky: CEO Pay and Skill |
| Authors: | Daines, Robert
Nair, Vinay B
Kornhauser, Lewis |
| Issue Date: | Aug-2005 |
| Series/Report no.: | CLB-06-005 |
| Abstract: | CEO compensation varies widely, even within industries. In this paper,
we investigate whether differences in skill explain these differences in
CEO pay. Using the idea that skilled CEOs should be more likely to
continue prior good performance and more likely to reverse prior
poor performance, we develop a new methodology to detect whether skill
is related to pay. We find that highly paid CEOs are more skilled than
their less well paid peers when pay is performancebased and when there
is a large shareholder. This detected link between pay and skill is
strong even when we examine industry-wide declines: highly paid CEOs are
more likely to reverse the firm’s fortunes. We also examine
CEO turnovers and show that the firm’s post-turnover
performance is related to differences between the two CEO’s pay
levels. These results highlight conditions where pay and skill are
linked, and hence identify firms where high pay appears to have no justification. |
| URI: | http://hdl.handle.net/2451/25977 |
| Appears in Collections: | NYU Pollack Center for Law & Business Working Papers
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