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Political Constraints on Executive Compensation: Evidence from the Electric Utility Industry

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  • Paul L. Joskow
  • Nancy L. Rose
  • Catherine Wolfram

Abstract

This study explores the effect of regulatory and political constraints on the level of CEO compensation for 87 state-regulated electric utilities during 1978-1990. The results suggest that political pressures may constrain top executive pay levels in this industry. First, CEOs of firms operating in regulatory environments characterized by investment banks as relatively "proconsumer" receive lower compensation than do CEOs of firms in environments ranked as more friendly to investors. Second, CEO pay is lower for utilities with relatively high or rising rates, or a higher proportion of industrial customers. Finally, attributes of the commission appointment and tenure rules affect CEO compensation in ways consistent with the political constraint hypothesis.

Suggested Citation

  • Paul L. Joskow & Nancy L. Rose & Catherine Wolfram, 1996. "Political Constraints on Executive Compensation: Evidence from the Electric Utility Industry," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 165-182, Spring.
    • Handle: RePEc:rje:randje:v:27:y:1996:i:spring:p:165-182
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    More about this item

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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