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Managerial compensation: Luck, skill or labor markets?

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  • Brookman, Jeffrey T.
  • Thistle, Paul D.
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    Abstract

    Luck, skill and labor markets all have empirical support as determinants of managerial compensation. We examine the relative importance of pay for luck, managerial skill and labor market opportunities in determining compensation. We measure luck as the predictable component of firm performance, measure skill using managerial fixed effects and measure labor market opportunities as the compensation of executives at matched firms. Our results imply that managerial skill is the most important determinant of managers' compensation, followed by firm size and labor market opportunities, and that luck is not an important determinant of managerial compensation.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0929119913000254
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 21 (2013)
    Issue (Month): C ()
    Pages: 252-268

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    Handle: RePEc:eee:corfin:v:21:y:2013:i:c:p:252-268

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    Web page: http://www.elsevier.com/locate/jcorpfin

    Related research

    Keywords: Executive compensation; Human capital; Managerial ability;

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