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Increases in Executive Pay Following Privatization

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  • Catherine D. Wolfram

Abstract

The average chief executive at one of Britain's twelve regional electricity distribution companies experienced nearly a threefold salary increase in the two years following the industry privatization in 1990. It is hard to account for the tremendous pay raises with conventional explanations for executive compensation rates. They are not attributable to increases in managerial talent, because privatization brought virtually no changes in personnel at the top rank. In addition, the salary increases did not coincide with dramatic changes in firm scale, and cross‐firm differences in the raises are uncorrelated with stock‐market returns and other measures of firm performance. By contrast, salary increases are highly correlated with firms' potential profits (as measured by the administratively assigned price cap). The findings presented here thus provide new perspectives on the determinants of executive compensation.

Suggested Citation

  • Catherine D. Wolfram, 1998. "Increases in Executive Pay Following Privatization," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(3), pages 327-361, September.
    • Handle: RePEc:bla:jemstr:v:7:y:1998:i:3:p:327-361
    DOI: 10.1111/j.1430-9134.1998.00327.x
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Evans, Lewis, 1998. "The Critical Importance of Information: Incentive Regulation and its Application in Electricity," Working Paper Series 19034, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    2. repec:vuw:vuwscr:19024 is not listed on IDEAS
    3. Lea, Stephen E.G. & Webley, Paul, 2005. "In search of the economic self," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 34(5), pages 585-604, October.
    4. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
    5. Amihai Glazer & Hideki Konishi, "undated". "Why High-level Executives Earn Less in the Governmental Than in the Private Sector," Working Papers 2215, Waseda University, Faculty of Political Science and Economics.
    6. Firth, Michael & Fung, Peter M.Y. & Rui, Oliver M., 2007. "How ownership and corporate governance influence chief executive pay in China's listed firms," Journal of Business Research, Elsevier, vol. 60(7), pages 776-785, July.
    7. NZ Institute for the Study of Competition and Regulation Inc, 1999. "The Privatisation of New Zealand Rail," Treasury Working Paper Series 99/10, New Zealand Treasury.
    8. Hadley, Brandy, 2019. "Executive compensation and political sensitivity: Evidence from government contractors," Journal of Corporate Finance, Elsevier, vol. 59(C), pages 276-301.
    9. Evans, Lewis, 1998. "The Critical Importance of Information: Incentive Regulation and its Application in Electricity," Working Paper Series 3935, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    10. repec:dau:papers:123456789/3860 is not listed on IDEAS
    11. Natalia Pimenta Monteiro, 2010. "Using propensity matching estimators to evaluate the impact of privatization on wages," Applied Economics, Taylor & Francis Journals, vol. 42(10), pages 1293-1313.
    12. Gloria Cuevas-Rodríguez & Jaime Guerrero-Villegas & Ramón Valle-Cabrera, 2019. "Privatization and organizational changes: Evidence from Spain," Working Papers 19.04, Universidad Pablo de Olavide, Department of Business Organization and Marketing (former Department of Business Administration), revised Jun 2019.
    13. The New Zealand Institute for the Study of Competition and Regulation Inc., 1999. "The Privatization of New Zealand Rail Part 2: Quantitative Cost Benefit Analysis," Working Paper Series 3925, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    14. Amihai Glazer & Hideki Konishi, 2017. "Why High-level Executives Earn Less in the Government Than in the Private Sector," Working Papers 1713, Waseda University, Faculty of Political Science and Economics.
    15. Nancy L. Rose & Catherine Wolfram, 2000. "Regulating Executive Pay: Using the Tax Code to Influence CEO Compensation," NBER Working Papers 7842, National Bureau of Economic Research, Inc.
    16. repec:vuw:vuwscr:19034 is not listed on IDEAS
    17. Monteiro, Natalia Pimenta, 2003. "The Impact of Privatisation on Wages: Evidence from the Portugese Banking Industry," Royal Economic Society Annual Conference 2003 156, Royal Economic Society.
    18. Alex Bryson & John Forth & Minghai Zhou, 2014. "Same or Different? The CEO Labour Market in China's Public Listed Companies," Economic Journal, Royal Economic Society, vol. 124(574), pages 90-108, February.
    19. Gloria Cuevas-Rodriguez & Jaime Guerrero-Villegas & Ramón Valle-Cabrera, 2014. "Privatization effects on corporate governance, strategy and compensation systems," Working Papers 14.03, Universidad Pablo de Olavide, Department of Business Organization and Marketing (former Department of Business Administration).
    20. Debande, Olivier & Friebel, Guido, 2004. "A positive theory of give-away privatization," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1309-1325, November.
    21. The New Zealand Institute for the Study of Competition and Regulation, 1999. "The Privatization of New Zealand Rail Part 2: Quantitative Cost Benefit Analysis," Working Paper Series 19024, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.

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