Executive Pay, Talent and Firm Size

63 Pages Posted: 25 Aug 2008 Last revised: 29 Jan 2009

See all articles by Jaeyoung Sung

Jaeyoung Sung

Ajou University

Peter L. Swan

University of New South Wales (UNSW Sydney; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: October 6, 2008

Abstract

We present an integrated agency model of career concerns and labor market equilibrium. Unlike the existing literature, our managerial reservation utility levels and thus their pay levels are endogenously determined, and managers with high expected talent levels are not necessarily hired by large firms. A number of our theoretical results are supported by our panel data for 1992-2006 exclusive of time factors, which strikingly suggest that the average talent level of small firm CEOs is only slightly lower than that of large firm CEOs, but the talent variability of small firm CEOs is far greater than that of large firms. Moreover, a remarkable 55% of CEO-years indicate negative (real) productivity; and a sizeable portion of the increased real CEO pay levels in terms of higher productivity is attributable to both firm size and compensation for risk.

Keywords: executive pay, firm size, career concern, CEO talent, principal-agent, optimal contract.

JEL Classification: G34, J41, J44, L25

Suggested Citation

Sung, Jaeyoung and Swan, Peter Lawrence, Executive Pay, Talent and Firm Size (October 6, 2008). 21st Australasian Finance and Banking Conference 2008 Paper. Available at SSRN: https://ssrn.com/abstract=1250742 or http://dx.doi.org/10.2139/ssrn.1250742

Jaeyoung Sung

Ajou University ( email )

Woncheon-dong, Yeongtong-gu
Suwon-si, Gyeonggi-do
Korea, Republic of (South Korea)

Peter Lawrence Swan (Contact Author)

University of New South Wales (UNSW Sydney ( email )

School of Banking and Finance
UNSW Business School
Sydney NSW, NSW 2052
Australia
+61 2 9385 5871 (Phone)
+61 2 9385 6347 (Fax)

HOME PAGE: http://https://www.business.unsw.edu.au/our-people/peterswan

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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