Public and Private Firm Compensation Compared: Evidence from Japanese Tax Returns
J. Mark Ramseyer
Harvard Law School
University of Tokyo - Faculty of Law
Eric Bennett Rasmusen
Indiana University - Kelley School of Business - Department of Business Economics & Public Policy
February 1, 2009
Harvard Law and Economics Discussion Paper No. 628
Most studies of executive compensation focus on publicly traded companies. The high levels of compensation there are often attributed to agency slack due to ownership by diffused shareholders. If so, pay at private companies more closely held should be much lower. Governments in the United States and elsewhere do not require the pay of executives in private companies to be publicly disclosed, but until 2004 the tax office of Japan published the name and tax liability of any individual paying over about $100,000 in tax. We match this tax data with rosters of some 1,400 presidents of public and 4,100 presidents of private corporations. We find that public and private company presidents have similar incomes. Both groups earn incomes that rise with the size and profitability of the firm, but the presidents' incomes are more sensitive to profitability at public firms than at private ones. In Japan, at least, public firms pay their presidents no more than private firms do, and tie that compensation more closely to observable performance benchmarks.
Number of Pages in PDF File: 26
JEL Classification: D24, G30, G34, J31, J33, J44, K23, L84
Date posted: March 13, 2009 ; Last revised: May 14, 2014
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