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CEO compensation : trends, market changes, and regulation

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  • Arantxa Jarque

Abstract

The average pay of a chief executive officer (CEO) in a top U.S. firm has increased six-fold in the last three decades. Simultaneously, the composition of pay has moved away from salary-based and increasingly toward performance-based compensation in the form of stock grants and stock option grants. This has strengthened the link between CEO pay and firm performance. Anecdotal evidence on the recent corporate fraud scandals suggests that some incentive problems remain unsolved. However, the academic literature reviewed in this article concludes that changes in market characteristics and the economic environment can partly explain the increase in pay and sensitivity of pay. A market-driven improvement in shareholders? power, together with recent regulatory efforts of corporate governance practices, seems to have produced a healthier corporate sector in which high salaries are not necessarily a sign of entrenchment and inappropriate incentives for executives.

Suggested Citation

  • Arantxa Jarque, 2008. "CEO compensation : trends, market changes, and regulation," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 94(Sum), pages 265-300.
    • Handle: RePEc:fip:fedreq:y:2008:i:sum:p:265-300:n:v.94no.3
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    Cited by:

    1. Clementi, Gian Luca & Cooley, Thomas F. & Wang, Cheng, 2006. "Stock grants as a commitment device," Journal of Economic Dynamics and Control, Elsevier, vol. 30(11), pages 2191-2216, November.
    2. Lane Kenworthy, 2010. "Business Political Capacity and the Top-Heavy Rise in Income Inequality: How Large an Impact?," Politics & Society, , vol. 38(2), pages 255-265, June.
    3. Wang, Cheng, 1997. "Incentives, CEO Compensation, and Shareholder Wealth in a Dynamic Agency Model," Journal of Economic Theory, Elsevier, vol. 76(1), pages 72-105, September.
    4. Nicholas Apergis & Christina Christou & Rangan Gupta & Stephen M. Miller, 2015. "Convergence in Income Inequality: Further Evidence from the Club Clustering Methodology across the U.S. States," Working Papers 201539, University of Pretoria, Department of Economics.
    5. Gan, Huiqi & Park, Myung Seok, 2016. "Are more able CEOs getting more compensated? Evidence from the pay-for-performance sensitivity of equity-based incentives," Advances in accounting, Elsevier, vol. 34(C), pages 64-76.
    6. repec:eee:jebusi:v:67:y:2013:i:c:p:67-76 is not listed on IDEAS
    7. Igor Benati & Mario Coccia, 2017. "The relation between public manager compensation and members of parliament’s salary across OECD countries: explorative analysis and possible determinants with public policy implications," quaderni IRCrES 201702, CNR-IRCrES Research Institute on Sustainable Economic Growth - Moncalieri (TO) ITALY - former Institute for Economic Research on Firms and Growth - Torino (TO) ITALY.
    8. Robert J. Gordon, 2009. "Misperceptions About the Magnitude and Timing of Changes in American Income Inequality," NBER Working Papers 15351, National Bureau of Economic Research, Inc.
    9. Scott J. Callan & Janet M. Thomas, 2014. "Relating CEO Compensation to Social Performance and Financial Performance: Does the Measure of Compensation Matter?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 21(4), pages 202-227, July.

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