IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

CEO Pay and Firm Size: an Update after the Crisis

  • Xavier Gabaix
  • Augustin Landier
  • Julien Sauvagnat

In the "size of stakes" view quantitatively formalized in Gabaix and Landier (2008), CEO compensation is determined in a competitive talent market, and reflects the size of firms affected by talent. This paper offers an empirical update on this view. The years 2004-2011, which include the recent crisis, were not part of the initial study and offer a laboratory to examine the theory as they include new positive and negative shocks to the size of large firms. Executive compensation at the top (ex ante) did closely track the evolution of average firm value during those years. During the crisis (2007 - 2009), average total firm value decreased by 17%, and CEO pay decreased by 28%. During 2009-2011, we observe a rebound of firm value by 19% and of CEO pay increased by 22%. These fairly proportional changes provide a validity check in favor of the "size of stakes" view.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w19078.pdf
Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19078.

as
in new window

Length:
Date of creation: May 2013
Date of revision:
Publication status: published as Xavier Gabaix & Augustin Landier & Julien Sauvagnat, 2014. "CEO Pay and Firm Size: An Update After the Crisis," Economic Journal, Royal Economic Society, vol. 124(574), pages F40-F59, 02.
Handle: RePEc:nbr:nberwo:19078
Note: CF LS
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Thomas Lemieux & W. Bentley Macleod & Daniel Parent, 2006. "Performance Pay And Wage Inequality," Departmental Working Papers 2006-08, McGill University, Department of Economics.
  2. Xavier Gabaix & Rustam Ibragimov, 2007. "Rank-1/2: A Simple Way to Improve the OLS Estimation of Tail Exponents," NBER Technical Working Papers 0342, National Bureau of Economic Research, Inc.
  3. Erzo G. J. Luttmer, 2007. "Selection, Growth, and the Size Distribution of Firms," The Quarterly Journal of Economics, MIT Press, vol. 122(3), pages 1103-1144, 08.
  4. Marianne Bertrand & Antoinette Schoar, 2003. "Managing With Style: The Effect Of Managers On Firm Policies," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1169-1208, November.
  5. Murphy, Kevin J. & Sandino, Tatiana, 2010. "Executive pay and "independent" compensation consultants," Journal of Accounting and Economics, Elsevier, vol. 49(3), pages 247-262, April.
  6. Yonca Ertimur & Fabrizio Ferri & David Oesch, 2013. "Shareholder Votes and Proxy Advisors: Evidence from Say on Pay," Journal of Accounting Research, Wiley Blackwell, vol. 51(5), pages 951-996, December.
  7. Benjamin E. Hermalin, 2005. "Trends in Corporate Governance," Journal of Finance, American Finance Association, vol. 60(5), pages 2351-2384, October.
  8. Steven N. Kaplan & Joshua Rauh, 2007. "Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?," NBER Working Papers 13270, National Bureau of Economic Research, Inc.
  9. Anil Shivdasani & David Yermack, 1998. "CEO Involvement in the Selection of New Board Members: An Empirical Analysis," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-059, New York University, Leonard N. Stern School of Business-.
  10. Alex Edmans & Xavier Gabaix, 2011. "The Effect of Risk on the CEO Market," Review of Financial Studies, Society for Financial Studies, vol. 24(8), pages 2822-2863.
  11. Eisfeldt, Andrea & Kuhnen, Camelia M., 2010. "CEO turnover in a competitive assignment framework," MPRA Paper 22367, University Library of Munich, Germany.
  12. Brian J. Hall, 1999. "The Design Of Multi-Year Stock Option Plans," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(2), pages 97-106.
  13. Cadman, Brian & Carter, Mary Ellen & Hillegeist, Stephen, 2010. "The incentives of compensation consultants and CEO pay," Journal of Accounting and Economics, Elsevier, vol. 49(3), pages 263-280, April.
  14. Michael Faulkender & Jun Yang, 2013. "Is Disclosure an Effective Cleansing Mechanism? The Dynamics of Compensation Peer Benchmarking," Review of Financial Studies, Society for Financial Studies, vol. 26(3), pages 806-839.
  15. Xavier Gabaix & Augustin Landier, 2006. "Why Has CEO Pay Increased So Much?," 2006 Meeting Papers 518, Society for Economic Dynamics.
  16. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June.
  17. Gabaix, Xavier & Ibragimov, Rustam, 2011. "Rank − 1 / 2: A Simple Way to Improve the OLS Estimation of Tail Exponents," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(1), pages 24-39.
  18. Bereskin, Frederick L. & Cicero, David C., 2013. "CEO compensation contagion: Evidence from an exogenous shock," Journal of Financial Economics, Elsevier, vol. 107(2), pages 477-493.
  19. Alex Edmans & Xavier Gabaix & Augustin Landier, 2009. "A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium," Review of Financial Studies, Society for Financial Studies, vol. 22(12), pages 4881-4917, December.
  20. Lucian Bebchuk & Yaniv Grinstein, 2005. "The Growth of Executive Pay," NBER Working Papers 11443, National Bureau of Economic Research, Inc.
  21. Kevin J. Murphy & Ján Zábojník, 2004. "CEO Pay and Appointments: A Market-Based Explanation for Recent Trends," American Economic Review, American Economic Association, vol. 94(2), pages 192-196, May.
  22. Marko Tervio, 2008. "The Difference That CEOs Make: An Assignment Model Approach," American Economic Review, American Economic Association, vol. 98(3), pages 642-68, June.
  23. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality In The United States, 1913-1998," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 1-39, February.
  24. Carola Frydman & Raven E. Saks, 2007. "Executive compensation: a new view from a long-term perspective, 1936-2005," Finance and Economics Discussion Series 2007-35, Board of Governors of the Federal Reserve System (U.S.).
  25. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
  26. Marianne Bertrand & Sendhil Mullainathan, 2001. "Are Ceos Rewarded For Luck? The Ones Without Principals Are," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 901-932, August.
  27. Ulrike Malmendier & Geoffrey Tate, 2008. "Superstar CEOs," NBER Working Papers 14140, National Bureau of Economic Research, Inc.
  28. Bizjak, John & Lemmon, Michael & Nguyen, Thanh, 2011. "Are all CEOs above average? An empirical analysis of compensation peer groups and pay design," Journal of Financial Economics, Elsevier, vol. 100(3), pages 538-555, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:19078. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.