Skip navigation
Title: 

Technological Change and the Growing Inequality in Managerial Compensation

Authors: Van Nieuwerburgh, Stijn
Lustig, Hanno
Syverson, Chad
Issue Date: 11-Feb-2009
Series/Report no.: FIN-08-044
Abstract: Three of the most fundamental changes in US corporations since the early 1970s have been (1) the increased importance of organizational capital in production, (2) the increase in managerial income inequality and pay-performance sensitivity, and (3) the secular decrease in labor market reallocation. Our paper develops a simple explanation for these changes: a shift in the composition of productivity growth away from vintage-specific to general growth. This shift has stimulated the accumulation of organizational capital in existing firms and reduced the need for reallocating workers to new firms. We characterize the optimal managerial compensation contract when firms accumulate organizational capital but risk-averse managers cannot commit to staying with the firm. A calibrated version of the model reproduces the increase in managerial compensation inequality and the increased sensitivity of pay to performance in the data over the last three decades.
URI: http://hdl.handle.net/2451/27897
Appears in Collections:Finance Working Papers

Files in This Item:
File Description SizeFormat 
wpa08044.pdf1.09 MBAdobe PDFView/Open


Items in FDA are protected by copyright, with all rights reserved, unless otherwise indicated.