Are CEOs in Public U.S. Firms Overpaid? New Evidence from Private Firms
49 Pages Posted: 17 Mar 2010 Last revised: 19 Mar 2012
Date Written: March 15, 2012
Abstract
We provide new evidence on the debate whether CEOs in public U.S. firms are significantly overpaid using their counterparts in private U.S. firms over the period 1999 to 2008. Using public and private firm CEO pay data made available through mandated SEC disclosures, we first show that after controlling for firm and CEO characteristics, public firm CEOs are paid more than private firm CEOs, with a modest pay premium of about 20%, and public firm CEOs are given more on-going equity incentives. This public pay premium becomes economically insignificant after accounting for differences in risk, dividend policy, and CEO turnover between public and private firms. We then show that both public and private firm CEO annual compensation is positively and significantly related to firm accounting performance, and the pay-performance link is much stronger in public firms. We provide some evidence that the pay differential is related to labor market segmentation between the two types of firms and increasing over time. Finally, when firms transition from private to public status, we find that both the level and structure of pay change significantly in ways that corroborate our findings from the cross-section.
Keywords: CEO annual compensation; equity incentives; pay structure; pay-performance sensitivity; private firms; public firms
JEL Classification: G34
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Are CEOS Really Paid Like Bureaucrats?
By Brian J. Hall and Jeffrey B. Liebman
-
Are CEOS Really Paid Like Bureaucrats?
By Brian J. Hall and Jeffrey B. Liebman
-
The Other Side of the Tradeoff: The Impact of Risk on Executive Compensation
-
Good Timing: CEO Stock Option Awards and Company News Announcements
-
Good Timing: CEO Stock Option Awards and Company News Announcements
-
The Use of Equity Grants to Manage Optimal Equity Incentive Levels
By John E. Core and Wayne R. Guay
-
The Other Side of the Tradeoff: the Impact of Risk on Executive Compensation
-
Stock Options for Undiversified Executives
By Brian J. Hall and Kevin J. Murphy