CEO Pay and Appointments: Putting Integrity Back into Hiring Decisions

17 Pages Posted: 14 Oct 2007

See all articles by Katja Rost

Katja Rost

University of Zurich - Institute for Organization and Administrative Science

Date Written: January 4, 2007

Abstract

A rarely studied trend in corporate governance is the increasing tendency to fill CEO openings through external hires rather than through internal promotions: Kevin J. Murphy and Ján Zábojník (2004) show that the proportion of outside hires has doubled and their pay premium almost quadrupled over the last thirty years. Assuming that general managerial skills are becoming more important relative to firm-specific skills, the authors conclude that competition in the managerial labor market establishes an optimal compensation contract. In our model we question the last explanation and argue that it is the balanced mix of external market control and internal firm control that establishes compensation contracts, which may be approximately optimal.

Keywords: CEO Appointments, external hires, suboptimal contracts

JEL Classification: G34, J23, J41, M52

Suggested Citation

Rost, Katja, CEO Pay and Appointments: Putting Integrity Back into Hiring Decisions (January 4, 2007). Available at SSRN: https://ssrn.com/abstract=1019743 or http://dx.doi.org/10.2139/ssrn.1019743

Katja Rost (Contact Author)

University of Zurich - Institute for Organization and Administrative Science ( email )

Plattenstrasse 14
CH-8032 Zurich
Switzerland

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