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Compensation and Recruiting: Private Universities versus Private Corporations

  • Cornell, Bradford
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    This paper attempts to shed light on the continuing debate regarding executive compensation by comparing the income of S&P 500 CEOs with that of the Presidents of elite private universities. The results reveal that university presidents are paid only a fraction of what CEOs are paid – less than 5% in 2000. Nonetheless, universities are able to attract leaders with qualifications and accomplishments equivalent to that of the most distinguished CEOs. Furthermore, university presidents appear to be willing to work as hard and as much in the interests of their constituents as corporate CEOs despite the lack of any meaningful incentive clauses in their contracts. These results suggest that the standard principal agent model used in evaluating compensation needs to be extended significantly before it can be applied to situations in a few select people are recruited for highly paid and visible jobs that offer the chance to lead major institutions.

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    File URL: http://www.escholarship.org/uc/item/6z76z49q.pdf;origin=repeccitec
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    Paper provided by Anderson Graduate School of Management, UCLA in its series University of California at Los Angeles, Anderson Graduate School of Management with number qt6z76z49q.

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    Date of creation: 01 Apr 2002
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    Handle: RePEc:cdl:anderf:qt6z76z49q
    Contact details of provider: Postal: 110 Westwood Plaza, Los Angeles, CA. 90095
    Web page: http://www.escholarship.org/repec/anderson_fin/

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    1. Sanford Grossman & Oliver Hart, . "An Analysis of the Principal-Agent Problem," Rodney L. White Center for Financial Research Working Papers 15-80, Wharton School Rodney L. White Center for Financial Research.
    2. John M. Abowd & David S. Kaplan, 1999. "Executive Compensation: Six Questions That Need Answering," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 145-168, Fall.
    3. Jonathan S. Leonard, 1990. "Executive pay and firm performance," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 43(3), pages 13-29, February.
    4. Marianne Bertrand & Sendhil Mullainathan, 2000. "Agents with and without Principals," Working Papers 809, Princeton University, Department of Economics, Industrial Relations Section..
    5. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-64, April.
    6. John M. Abowd, 1990. "Does performance-based managerial compensation affect corporate performance?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 43(3), pages 52-73, February.
    7. John M. Abowd & Michael Bognanno, 1995. "International Differences in Executive and Managerial Compensation," NBER Chapters, in: Differences and Changes in Wage Structures, pages 67-104 National Bureau of Economic Research, Inc.
    8. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
    9. HOLMSTROM, Bengt, . "Moral hazard and observability," CORE Discussion Papers RP -379, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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