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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/25984
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| Title: | Why Has CEO Pay Increased So Much? |
| Authors: | Gabaix, Xavier
Landier, Augustin |
| Keywords: | Executive compensation
wage distribution
corporate governance
Roberts’law
Zipf ’s law
scaling
extreme value theory
superstars
calibratable corporate finance |
| Issue Date: | 21-Jul-2006 |
| Series/Report no.: | CLB-06-011 |
| Abstract: | This paper develops a simple equilibrium model of CEO pay. CEOs have
different talents and are matched to firms in a competitive assignment
model. In market equilib-rium, a CEO’s pay changes one for one
with aggregate firm size, while changing much less with the size of his
own firm. The model determines the level of CEO pay across firms and
over time, offering a benchmark for calibratable corporate finance. The
six- fold increase of CEO pay between 1980 and 2003 can be fully
attributed to the six-fold increase in market capitalization of large US
companies during that period. We find a very small dispersion in CEO
talent, which nonetheless justifies large pay differences. The data
broadly support the model. The size of large firms explains many of the
pat-terns in CEO pay, across firms, over time, and between countries.
(JEL D2, D3, G34, J3). |
| URI: | http://hdl.handle.net/2451/25984 |
| Appears in Collections: | NYU Pollack Center for Law & Business Working Papers
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