Abstract
This article analyzes the trajectory and causes of the explosion of American corporate CEOs’ compensation relative to that of average workers between 1958 and 2017. The historical data are presented and analyzed in more detail for 2016 and 2017. Important biases in alternative data sets are explored. Alternative hypotheses for the dramatic changes over time are proposed but not resolved. Among other things, the paper investigates the role of tax and other government policy changes and regulation-induced innovations in the organization of executive pay determination.
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Notes
For a survey of the literature, see Scherer and Ross (1990, pp. 44–46).
According to a representative of Equilar, a consulting firm specializing in executive compensation analysis, most company reports value stock options granted using some variant of the Black–Scholes method.
Matthew Goldenstein, “Executive Pay: Race to the Top,” New York Times, May 28, 2017, Sunday Business section, p. 1. Equilar began providing the survey to the Times in the mid-2000s. For 2017 data, see David Gellen, “Millions at Top, a Pittance Below,” New York Times, May 27, 2018, Sunday Business section, p. 1.
See also Hall and Murphy (2003, pp. 51–52).
New York Times, May 28, 2017, pp. 6–7.
The minimum percentages (0.09%) were, surprisingly, for two banks: Bank of America and Citigroup. Compare Scherer (2016, p. 290). Biotech superstar Gilead Sciences was third-lowest at 0.10%.
U.S. Senate (1992, pp. 1–3).
The incentive requirements were eliminated as part of the major corporate income tax law revision enacted in 2017, effective in 2018. For speculation on the effects of the change, see Lerner and Sinkular (2018).
Although the metaphor is obvious, Bebchuk and Fried (2004, p. 71) attribute it to a former Harvard Business School dean, (economist) Kim Clark.
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Scherer, F.M. Managerial Control and Executive Compensation. Rev Ind Organ 56, 315–327 (2020). https://doi.org/10.1007/s11151-019-09691-9
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DOI: https://doi.org/10.1007/s11151-019-09691-9