We analyze the long-run trends in executive compensation using a new panel dataset of top executives in large publicly-held firms from 1936 to 2005, collected from corporate reports. This historic perspective reveals several surprising new facts that conflict with inferences based only on data from the recent decades. First, the median real value of compensation was remarkably flat from the end of World War II to the mid-1970s, even during times of rapid economic expansion and aggregate firm growth. This finding contrasts sharply with the steep upward trajectory of pay over the past thirty years, which coincided with a period of similarly large increases in aggregate firm size. A second surprising finding is that the sensitivity of an executive's wealth to firm performance was not inconsequentially small for most of our sample period. Thus, recent years were not the first time when compensation arrangements served to align managerial incentives with those of shareholders. Taken together, the long-run trends in the level and structure of compensation pose a challenge to several common explanations for the widely-debated surge in executive pay of the past several decades, including changes in firms' size, rent extraction by CEOs, and increases in managerial incentives.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
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Length: Date of creation: Jun 2008 Date of revision: Handle: RePEc:nbr:nberwo:14145
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Find related papers by JEL classification: G30 - Financial Economics - - Corporate Finance and Governance - - - General J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects N82 - Economic History - - Micro-Business History - - - U.S.; Canada: 1913-
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"The Taxation of Executive Compensation,"
NBER Chapters,
in: Tax Policy and the Economy, Volume 14, pages 1-44
National Bureau of Economic Research, Inc.
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