CEO Pay with Perks
AbstractThis 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by McMaster University in its series Department of Economics Working Papers with number 2012-05.
Length: 51 pages
Date of creation: May 2012
Date of revision:
Contact details of provider:
Postal: 1280 Main Street West, Hamilton, Ontario, L8S 4M4
Phone: (905) 525-9140 ext. 22765
Fax: (905) 521-8232
Web page: http://www.economics.mcmaster.ca/
More information through EDIRC
matching; perks; executive compensation; private benefits;
Find related papers by JEL classification:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-05 (All new papers)
- NEP-BEC-2012-06-05 (Business Economics)
- NEP-CTA-2012-06-05 (Contract Theory & Applications)
- NEP-LAB-2012-06-05 (Labour Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rajan, Raghuram G. & Wulf, Julie, 2006.
"Are perks purely managerial excess?,"
Journal of Financial Economics, Elsevier,
Elsevier, vol. 79(1), pages 1-33, January.
- Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(4), pages 305-360, October.
- Patrick Legros & Andrew F. Newman, 2003.
"Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities,"
Economics Working Papers, Institute for Advanced Study, School of Social Science
0030, Institute for Advanced Study, School of Social Science.
- Patrick Legros & Andrew F. Newman, 2007. "Beauty Is a Beast, Frog Is a Prince: Assortative Matching with Nontransferabilities," Econometrica, Econometric Society, Econometric Society, vol. 75(4), pages 1073-1102, 07.
- Patrick Legros & Andrew F. Newman, 2002. "Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series, Boston University - Department of Economics dp-149, Boston University - Department of Economics, revised Nov 2004.
- Xavier Gabaix & Augustin Landier, 2006.
"Why Has CEO Pay Increased So Much?,"
NBER Working Papers
12365, National Bureau of Economic Research, Inc.
- Xavier Gabaix & Augustin Landier, 2006. "Why Has CEO Pay Increased So Much?," 2006 Meeting Papers, Society for Economic Dynamics 518, Society for Economic Dynamics.
- Nancy L. Rose & Andrea Shepard, 1997.
"Firm Diversification and CEO Compensation: Managerial Ability or Executive Entrenchment?,"
RAND Journal of Economics,
The RAND Corporation, vol. 28(3), pages 489-514, Autumn.
- Nancy L. Rose & Andrea Shepard, 1994. "Firm Diversification and CEO Compensation: Managerial Ability or Executive Entrenchment?," NBER Working Papers 4723, National Bureau of Economic Research, Inc.
- Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2002.
"Corporate Governance and Equity Prices,"
Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania
02-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(2), pages 288-307, April.
- John R. Graham & Si Li & Jiaping Qiu, 2012. "Managerial Attributes and Executive Compensation," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 25(1), pages 144-186.
- Core, John E. & Guay, Wayne & Larcker, David F., 2008. "The power of the pen and executive compensation," Journal of Financial Economics, Elsevier, Elsevier, vol. 88(1), pages 1-25, April.
- King, Tao-Hsien Dolly & Wen, Min-Ming, 2011. "Shareholder governance, bondholder governance, and managerial risk-taking," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(3), pages 512-531, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.