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Does the Market for CEO Talent Explain Controversial CEO Pay Practices?

Review of Finance, Forthcoming

55 Pages Posted: 26 Mar 2008 Last revised: 17 Apr 2014

Martijn Cremers

University of Notre Dame

Yaniv Grinstein

Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC) Herzliyah

Date Written: May 21, 2013

Abstract

Benchmarking, pay for luck, and the large compensation packages given to CEOs in recent years are three major controversial compensation practices. We examine the extent to which variation in the market for CEO talent explains these practices. We find that CEO compensation is benchmarked against other firms only in industries where CEO talent is not firm-specific, and that pay for luck is more prevalent there also. These findings are consistent with theories based on the market for CEO talent. However, CEO compensation levels do not depend on whether CEO talent is firm-specific, which seems inconsistent with the talent competition argument.

Keywords: CEO Compensation, talent, Skills, CEO Turnover, talent pools, pay for luck

JEL Classification: J33, G34

Suggested Citation

Cremers, Martijn and Grinstein, Yaniv, Does the Market for CEO Talent Explain Controversial CEO Pay Practices? (May 21, 2013). Review of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1108761 or http://dx.doi.org/10.2139/ssrn.1108761

K. J. Martijn Cremers

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Yaniv Grinstein (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Sage Hall
Ithaca, NY 14853
United States
607-255-8686 (Phone)
607-254-4590 (Fax)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

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