Learning from the Past: Trends in Executive Compensation over the Twentieth Century

32 Pages Posted: 20 Nov 2008

Date Written: November 2008


In recent years, a large academic debate has tried to explain the rapid rise in CEO pay experienced over the past three decades. In this article, I review the main proposed theories, which span views of compensation as the result of a competitive labor market for executives to theories based on excess of managerial power. Some of these hypotheses have found support in cross-sectional evidence, but it has proven more difficult to determine which factors have caused the observed changes in pay over time. An alternative strategy is to evaluate the fit of plausible explanations out of sample by contrasting them with the evolution in executive pay and the market for managers during earlier time periods. A case study of General Electric suggests that evidence for earlier decades can speak to the recent trends and reveals the limitations of current explanations to address the long-run data.

Keywords: executive compensation, managerial incentives, corporate governance, market for managers

JEL Classification: J33, M52, N32

Suggested Citation

Frydman, Carola, Learning from the Past: Trends in Executive Compensation over the Twentieth Century (November 2008). CESifo Working Paper Series No. 2460, Available at SSRN: https://ssrn.com/abstract=1303386 or http://dx.doi.org/10.2139/ssrn.1303386

Carola Frydman (Contact Author)

Northwestern University ( email )

2211 Campus Drive
Room 4383
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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