Executive Compensation: A New View from a Long-Term Perspective, 1936-2005

51 Pages Posted: 30 Jun 2008 Last revised: 27 Aug 2010

See all articles by Carola Frydman

Carola Frydman

Northwestern University; National Bureau of Economic Research (NBER)

Raven E. Saks

U.S. Federal Reserve - Division of Research and Statistics

Multiple version iconThere are 2 versions of this paper

Date Written: June 2008

Abstract

We analyze the long-run trends in executive compensation using a new panel dataset of top executives in large publicly-held firms from 1936 to 2005, collected from corporate reports. This historic perspective reveals several surprising new facts that conflict with inferences based only on data from the recent decades. First, the median real value of compensation was remarkably flat from the end of World War II to the mid-1970s, even during times of rapid economic expansion and aggregate firm growth. This finding contrasts sharply with the steep upward trajectory of pay over the past thirty years, which coincided with a period of similarly large increases in aggregate firm size. A second surprising finding is that the sensitivity of an executive's wealth to firm performance was not inconsequentially small for most of our sample period. Thus, recent years were not the first time when compensation arrangements served to align managerial incentives with those of shareholders. Taken together, the long-run trends in the level and structure of compensation pose a challenge to several common explanations for the widely-debated surge in executive pay of the past several decades, including changes in firms' size, rent extraction by CEOs, and increases in managerial incentives.

Suggested Citation

Frydman, Carola and Saks, Raven E., Executive Compensation: A New View from a Long-Term Perspective, 1936-2005 (June 2008). NBER Working Paper No. w14145. Available at SSRN: https://ssrn.com/abstract=1152686

Carola Frydman (Contact Author)

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Raven E. Saks

U.S. Federal Reserve - Division of Research and Statistics ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
82
Abstract Views
914
rank
18,737
PlumX Metrics