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CEO Pay with Perks

Andrew Carrothers, Seungjin Han () and Jiaping Qiu

Department of Economics Working Papers from McMaster University

Abstract: This paper develops an equilibrium matching model for a competitive CEO market in which CEOs’ wage and perks are both endogenously determined by bargaining between firms and CEOs. In stable matching equilibrium, firm size, wage, perks and talent are all positively related. Perks are more sensitive than wage to changes in firm size if there are economies of scale in the cost of providing perks. Productivity-related perks provide common value by increasing both the CEO’s productivity and utility while non productivity-related perks provide private value by increasing the CEO’s utility only. The more perks enhance the CEO’s productivity, the faster perks increase in firm size. We test the predictions of the model using information on CEO wage and perks for S&P 500 companies and find consistent empirical evidence.

Keywords: matching; perks; executive compensation; private benefits (search for similar items in EconPapers)
JEL-codes: C78 G30 J33 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2012-05
New Economics Papers: this item is included in nep-bec, nep-cta and nep-lab
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