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From shareholder value to CEO power: The paradox of the 1990s

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  • Robert Boyer

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

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    Abstract

    Why did CEOs remuneration exploded during the 90s and persisted to high levels, even after the bursting out of the Internet bubble? This article surveys the alternative explanations that have been given of this paradox mainly by various economic theories with some extension to political science, business administration, social psychology, moral philosophy, network analysis. Basically, it is argued that the diffusion of stock-options and financial market related incentives, that were supposed to discipline managers, have entitled them to convert their intrinsic power into remuneration and wealth, both at the micro and macro levels. This is the outcome of a de facto alliance of executives with financiers, who have thus exploited the long run erosion of wage earners'bargaining power. The article also discusses the possible reforms that could reduce the probability and the adverse consequences of CEOs and top-managers opportunism: reputation, business ethic, legal sanctions, public auditing of companies, or shift from a shareholder to a stakeholder conception.

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    File URL: http://halshs.archives-ouvertes.fr/docs/00/59/08/48/PDF/wp200510.pdf
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    Bibliographic Info

    Paper provided by HAL in its series Working Papers with number halshs-00590848.

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    Date of creation: Mar 2005
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    Handle: RePEc:hal:wpaper:halshs-00590848

    Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00590848
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    Related research

    Keywords: Managers'control and remuneration ; stock-options ; history of quoted corporations ; optimal contract theory ; economic and political power of managers ; Internet bubble;

    References

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    1. Jensen, M.C. & Murphy, K.J., 1988. "Performance Pay And Top Management Incentives," Papers 88-04, Rochester, Business - Managerial Economics Research Center.
    2. Lucian Arye Bebchuk & Jesse M. Fried, 2003. "Executive Compensation as an Agency Problem," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 71-92, Summer.
    3. Conyon, Martin J & Murphy, Kevin J, 2000. "The Prince and the Pauper? CEO Pay in the United States and United Kingdom," Economic Journal, Royal Economic Society, vol. 110(467), pages F640-71, November.
    4. Main, Brian G M & O'Reilly, Charles A, III & Wade, James, 1995. "The CEO, the Board of Directors and Executive Compensation: Economic and Psychological Perspectives," Industrial and Corporate Change, Oxford University Press, vol. 4(2), pages 293-332.
    5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    6. David Yermack, 1996. "Good Timing: CEO Stock Option Awards and Company News Announcements," New York University, Leonard N. Stern School Finance Department Working Paper Seires 96-41, New York University, Leonard N. Stern School of Business-.
    7. Chauvin, Keith W. & Shenoy, Catherine, 2001. "Stock price decreases prior to executive stock option grants," Journal of Corporate Finance, Elsevier, vol. 7(1), pages 53-76, March.
    8. Bebchuk, Lucian A. & Fried, Jesse M., 2003. "Executive Compensation as an Agency Problem," Berkeley Olin Program in Law & Economics, Working Paper Series qt81q3136r, Berkeley Olin Program in Law & Economics.
    9. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality In The United States, 1913-1998," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 1-39, February.
    10. Temin, Peter, 1999. "The Stability of the American Business Elite," Industrial and Corporate Change, Oxford University Press, vol. 8(2), pages 189-209, June.
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    Citations

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    Cited by:
    1. Wiid, Ria & Pitt, Leyland & Mills, Adam J., 2012. "Every story tells a picture: Lessons from cartoons on corporate governance," Business Horizons, Elsevier, vol. 55(6), pages 543-550.
    2. Robert Boyer, 2008. "Democracy and social democracy facing contemporary capitalisms: A "régulationist" approach," Working Papers halshs-00586315, HAL.
    3. Callaghan, Helen, 2013. "Who cares about financialization? Explaining the decline in political salience of active markets for corporate control," MPIfG Discussion Paper 13/4, Max Planck Institute for the Study of Societies.

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