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CEO Pay with Perks

Author

Listed:
  • Andrew Carrothers
  • Seungjin Han
  • Jiaping Qiu

Abstract

This 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.

Suggested Citation

  • Andrew Carrothers & Seungjin Han & Jiaping Qiu, 2012. "CEO Pay with Perks," Department of Economics Working Papers 2012-05, McMaster University.
    • Handle: RePEc:mcm:deptwp:2012-05
    as

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    File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2012-05.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    matching; perks; executive compensation; private benefits;
    All these keywords.

    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

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