The 'Wicked' Environment of CEO Pay

Interfaces, 2013 Forthcoming

8 Pages Posted: 3 Feb 2013

See all articles by Robin M. Hogarth

Robin M. Hogarth

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Gueorgui I. Kolev

EDHEC Business School

Date Written: 2013

Abstract

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

Hogarth, Robin M. and Kolev, Gueorgui I., The 'Wicked' Environment of CEO Pay (2013). Interfaces, 2013 Forthcoming, Available at SSRN: https://ssrn.com/abstract=2211027

Robin M. Hogarth (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
34 93 542 2561 (Phone)
34 93 542 1746 (Fax)

Gueorgui I. Kolev

EDHEC Business School ( email )

24 avenue Gustave Delory
CS 50411
ROUBAIX CEDEX 1, F- 59057
France
+33 (0) 320 154 558 (Phone)

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