CEO wage dynamics: Estimates from a learning model

Lucian A. Taylor

Journal of Financial Economics, 2013, vol. 108, issue 1, 79-98

Abstract: The level of Chief Executive Officer (CEO) pay responds asymmetrically to good and bad news about the CEO's ability. The average CEO captures approximately half of the surpluses from good news, implying CEOs and shareholders have roughly equal bargaining power. In contrast, the average CEO bears none of the negative surplus from bad news, implying CEOs have downward rigid pay. These estimates are consistent with the optimal contracting benchmark of Harris and Hölmstrom (1982) and do not appear to be driven by weak governance. Risk-averse CEOs accept significantly lower compensation in return for the insurance provided by downward rigid pay.

Keywords: CEO; Compensation; Learning; Dynamics; Bargaining; SMM (search for similar items in EconPapers)
JEL-codes: D83 G34 J31 J33 J41 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:108:y:2013:i:1:p:79-98

DOI: 10.1016/j.jfineco.2012.11.008

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