Faculty Digital Archive

Archive@NYU >
Stern School of Business >
NYU Pollack Center for Law & Business Working Papers >

Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/25984

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

Files in This Item:

File Description SizeFormat
06-011.pdf452.42 kBAdobe PDFView/Open

Items in Faculty Digital Archive are protected by copyright, with all rights reserved, unless otherwise indicated.

 

The contents of the FDA may be subject to copyright, be offered under a Creative Commons license, or be in the public domain.
Please check items for rights statements. For information about NYU’s copyright policy, see http://www.nyu.edu/footer/copyright-and-fair-use.html 
Valid XHTML 1.0 | CSS