CEO Compensation

Frydman, Carola; Jenter, Dirk

Download This Paper

Open PDF in Browser

Add Paper to My Library

CEO Compensation

Rock Center for Corporate Governance at Stanford University Working Paper No. 77

42 Pages Posted: 1 Apr 2010 Last revised: 28 Nov 2010

See all articles by Carola Frydman

Carola Frydman

Northwestern University; National Bureau of Economic Research (NBER)

Dirk Jenter

London School of Economics & Political Science (LSE) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

There are 4 versions of this paper

Date Written: March 19, 2010

Abstract

This paper surveys the recent literature on CEO compensation. The rapid rise in CEO pay over the past 30 years has sparked an intense debate about the nature of the pay-setting process. Many view the high level of CEO compensation as the result of powerful managers setting their own pay. Others interpret high pay as the result of optimal contracting in a competitive market for managerial talent. We describe and discuss the empirical evidence on the evolution of CEO pay and on the relationship between pay and firm performance since the 1930s. Our review suggests that both managerial power and competitive market forces are important determinants of CEO pay, but that neither approach is fully consistent with the available evidence. We briefly discuss promising directions for future research.

Keywords: Executive compensation, managerial incentives, incentive compensation, equity compensation, option compensation, corporate governance

JEL Classification: G30, G34, J33, J31, J41, M52, D20

Suggested Citation: Suggested Citation

Frydman, Carola and Jenter, Dirk, CEO Compensation (March 19, 2010). Rock Center for Corporate Governance at Stanford University Working Paper No. 77, Available at SSRN: https://ssrn.com/abstract=1582232