The 'Wicked' Environment of CEO Pay
Interfaces, 2013 Forthcoming
8 Pages Posted: 3 Feb 2013
Date Written: 2013
CEO remuneration is contentious and so we applaud Jacquart and Armstrong’s (2013) systematic evidence-based review. We augment their analysis in two ways. First, we highlight the lack of demonstrated validity of “unaided expert judgment” to set CEO remuneration by pointing out that the settings in which such judgments are made do not facilitate learning through experience and are subject to many biases. In particular, we briefly describe our empirical study that demonstrates illusory correlation in the form of a relation between golfing ability and CEO remuneration that does not mirror CEO performance (Kolev & Hogarth, 2010). Second, we provide novel analysis of empirical data that shows that boards of directors are unable to predict future performance of CEOs accurately when deciding on remuneration packages. Finally, we advocate the use of systematic methods in setting CEO remuneration.
Keywords: CEO pay, CEO performance, illusory correlation, judgmental biases
JEL Classification: G3, J3, M5, C3
Suggested Citation: Suggested Citation