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Managerial compensation: Luck, skill or labor markets?

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  • Brookman, Jeffrey T.
  • Thistle, Paul D.

Abstract

Luck, skill and labor markets all have empirical support as determinants of managerial compensation. We examine the relative importance of pay for luck, managerial skill and labor market opportunities in determining compensation. We measure luck as the predictable component of firm performance, measure skill using managerial fixed effects and measure labor market opportunities as the compensation of executives at matched firms. Our results imply that managerial skill is the most important determinant of managers' compensation, followed by firm size and labor market opportunities, and that luck is not an important determinant of managerial compensation.

Suggested Citation

  • Brookman, Jeffrey T. & Thistle, Paul D., 2013. "Managerial compensation: Luck, skill or labor markets?," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 252-268.
  • Handle: RePEc:eee:corfin:v:21:y:2013:i:c:p:252-268 DOI: 10.1016/j.jcorpfin.2013.03.001
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    References listed on IDEAS

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    Cited by:

    1. Campbell, T. Colin & Thompson, Mary Elizabeth, 2015. "Why are CEOs paid for good luck? An empirical comparison of explanations for pay-for-luck asymmetry," Journal of Corporate Finance, Elsevier, pages 247-264.
    2. Pierre Chaigneau & Alex Edmans & Daniel Gottlieb, 2014. "The Value of Informativeness for Contracting," NBER Working Papers 20542, National Bureau of Economic Research, Inc.
    3. Sunday OGBEIDE & Babatunde AKANJI, 2016. "Executive Remuneration and the Financial Performance of Quoted Firms: The Nigerian Experience," Management and Economics Review, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 1(2), pages 229-242, December.
    4. repec:bla:afrdev:v:29:y:2017:i:3:p:429-445 is not listed on IDEAS
    5. repec:eee:joepsy:v:62:y:2017:i:c:p:87-97 is not listed on IDEAS

    More about this item

    Keywords

    Executive compensation; Human capital; Managerial ability;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J - Labor and Demographic Economics

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