CEO Pay with Perks

51 Pages Posted: 20 May 2012

See all articles by Andrew Glen Carrothers

Andrew Glen Carrothers

University of Prince Edward Island; CFA Institute - United States office

Seungjin Han

McMaster University - Department of Economics

Jiaping Qiu

McMaster University - Michael G. DeGroote School of Business

Date Written: May 18, 2012

Abstract

This paper develops an equilibrium matching model for a competitive CEO market in which CEOs’ wage and perks are both endogenously determined by bargaining between firms and CEOs. In stable matching equilibrium, firm size, wage, perks and talent are all positively related. Perks are more sensitive than wage to changes in firm size if there are economies of scale in the cost of providing perks. Productivity-related perks provide common value by increasing both the CEO’s productivity and utility while non productivity-related perks provide private value by increasing the CEO’s utility only. The more perks enhance the CEO’s productivity, the faster perks increase in firm size. We test the predictions of the model using information on CEO wage and perks for S&P 500 companies and find consistent empirical evidence.

Keywords: Matching, perks, executive compensation, private benefits

JEL Classification: C78, J33, G30

Suggested Citation

Carrothers, Andrew Glen and Han, Seungjin and Qiu, Jiaping, CEO Pay with Perks (May 18, 2012). Available at SSRN: https://ssrn.com/abstract=2062592 or http://dx.doi.org/10.2139/ssrn.2062592

Andrew Glen Carrothers

University of Prince Edward Island ( email )

550 University Avenue
Room 417 McDougall Hall
Charlottetown, Prince Edward Island C1A 4P3
Canada
9026205078 (Phone)

CFA Institute - United States office ( email )

P.O. Box 3668
915 East High Street
Charlottesville, VA 22902
United States

Seungjin Han

McMaster University - Department of Economics ( email )

Hamilton, Ontario L8S 4M4
Canada

Jiaping Qiu (Contact Author)

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

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