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CEO Compensation

Carola Frydman

Boston University - Department of Economics

Dirk Jenter

London School of Economics; Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

March 19, 2010

Rock Center for Corporate Governance at Stanford University Working Paper No. 77

This paper surveys the recent literature on CEO compensation. The rapid rise in CEO pay over the past 30 years has sparked an intense debate about the nature of the pay-setting process. Many view the high level of CEO compensation as the result of powerful managers setting their own pay. Others interpret high pay as the result of optimal contracting in a competitive market for managerial talent. We describe and discuss the empirical evidence on the evolution of CEO pay and on the relationship between pay and firm performance since the 1930s. Our review suggests that both managerial power and competitive market forces are important determinants of CEO pay, but that neither approach is fully consistent with the available evidence. We briefly discuss promising directions for future research.

Number of Pages in PDF File: 42

Keywords: Executive compensation, managerial incentives, incentive compensation, equity compensation, option compensation, corporate governance

JEL Classification: G30, G34, J33, J31, J41, M52, D20

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Date posted: April 1, 2010 ; Last revised: November 29, 2010

Suggested Citation

Frydman, Carola and Jenter, Dirk, CEO Compensation (March 19, 2010). Rock Center for Corporate Governance at Stanford University Working Paper No. 77. Available at SSRN: http://ssrn.com/abstract=1582232

Contact Information

Carola Frydman
Boston University - Department of Economics ( email )
270 Bay State Road
Boston, MA 02215
United States
Dirk Jenter (Contact Author)
London School of Economics ( email )
Houghton Street
London, WC2A 2AE
United Kingdom
HOME PAGE: http://personal.lse.ac.uk/jenter/
Stanford Graduate School of Business ( email )
655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN

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References:  163
Citations:  21

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