Generalists versus Specialists: Lifetime Work Experience and CEO Pay
New University of Lisbon - Nova School of Business and Economics; Imperial College London; Centre for Economic Policy Research (CEPR)
Miguel A. Ferreira
Nova School of Business and Economics; European Corporate Governance Institute (ECGI)
Pedro P. Matos
University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)
July 23, 2012
AFA 2012 Chicago Meetings Paper
ECGI - Finance Working Paper No. 333/2012
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.
Number of Pages in PDF File: 56
Keywords: Executive Compensation, Market for Executives, Human Capital
JEL Classification: G34, J24, J33
Date posted: March 15, 2011 ; Last revised: July 25, 2012
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