Generalists versus Specialists: Lifetime Work Experience and CEO Pay

62 Pages Posted: 15 Mar 2011 Last revised: 23 Oct 2018

See all articles by Claudia Custodio

Claudia Custodio

Imperial College London; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Pedro Matos

University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)

Date Written: July 23, 2012

Abstract

We show that pay is higher for CEOs with general managerial skills gathered during lifetime work experience. We use CEOs’ résumés of S&P 1,500 firms from 1993 through 2007 to construct an index of general skills that are transferable across firms and industries. We estimate an annual pay premium for generalist CEOs—those with an index value above the median—of 19% relative to specialist CEOs, which represents nearly a million dollars per year. This relation is robust to the inclusion of firm- and CEO-level controls, including fixed effects. CEO pay increases the most when firms externally hire a new CEO and switch from a specialist to a generalist CEO. Furthermore, the pay premium is higher when CEOs are hired to perform complex tasks such as restructurings and acquisitions. Our findings provide direct evidence of the increased importance of general managerial skills over firm-specific human capital in the market for CEOs in the last decades.

Keywords: Executive Compensation, Market for Executives, Human Capital

JEL Classification: G34, J24, J33

Suggested Citation

Custodio, Claudia and Ferreira, Miguel Almeida and Matos, Pedro, Generalists versus Specialists: Lifetime Work Experience and CEO Pay (July 23, 2012). AFA 2012 Chicago Meetings Paper, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 333/2012, Available at SSRN: https://ssrn.com/abstract=1785943 or http://dx.doi.org/10.2139/ssrn.1785943

Claudia Custodio (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Miguel Almeida Ferreira

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Pedro Matos

University of Virginia - Darden School of Business ( email )

University of Virginia
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434 243 8998 (Phone)
434 924 0726 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty-research/directory/pedro-matos/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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