EconPapers    
Economics at your fingertips  
 

Earnings distribution, corporate governance and CEO pay

Frederick Guy ()

International Review of Applied Economics, 2004, vol. 19, issue 1, 51-65

Abstract: We investigate the relationship between earnings differentials and the pay of CEOs of 190 British companies between 1970 and 1990. We find that (i) changes in the differential between the 90th and 50th weekly earnings percentiles for non-manual adult male workers [90:50] explain changes in the level of real CEO salary and bonus in our sample of companies; (ii) changes in this differential also account for changes in the elasticity of CEO pay to firm size; (iii) a broader measure of earnings inequality does far worse than 90:50 at explaining changes in both the level and the firm size elasticity of CEO pay; (iv) fitting the model on data for 1970-1983 and predicting pay levels for the period starting with the widespread adoption of executive share option schemes in 1984, we find a structural break in the relationship between lower management pay differentials and the pay of the CEO. We conclude first that top executive pay prior to 1984 was a stable function of both firm size and earnings differentials lower on the administrative ladder, consistent with a hypothesis advanced by Herbert Simon in 1957; and second that the use of share options from 1984 onward represents not simply a change in the mode of top executive compensation, but a de-linking of the pay of top executives and that of their subordinates.

Keywords: Executive pay; earnings; inequality (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/0269217042000312605 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Earnings Distribution, Corporate Governance and CEO Pay (1999) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:irapec:v:19:y:2004:i:1:p:51-65

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/CIRA20

DOI: 10.1080/0269217042000312605

Access Statistics for this article

International Review of Applied Economics is currently edited by Professor Malcolm Sawyer

More articles in International Review of Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

 
Page updated 2023-01-20
Handle: RePEc:taf:irapec:v:19:y:2004:i:1:p:51-65