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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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