Position, Power and Demand for CEOs: Understanding Executive Compensation in the U.S Market

27 Pages Posted: 9 Jun 2014

See all articles by Vijaya B. Marisetty

Vijaya B. Marisetty

RMIT University; Financial Research Network (FIRN)

Buvaneshwaran Venugopal

University of Central Florida - College of Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: June 8, 2014

Abstract

It is hard to explain dramatic increase in executive compensation using existing theories based on power or position (Frydman and Jenter (2010)). We attempt to address this issue by using CEO promotion, as chairman of the board, as our identi cation strategy. CEO promotion is expected to have signifi cant increase in both position and power hence it is easy to control any unobservable factors associated with power and position. We observe 32,033 CEO-years of publicly listed rms in the US market during the period 1996-2011 and fi nd that, after controlling for observable position and power proxies, compensation of promoted CEOs, that is over and above their peer group CEO chairmen appointees, is mainly explained by contemporaneous peer group compensation shocks in CEO labor market. Our result suggests that market-speci fic peer group compensation in the U.S CEO labor market is more important determinant of executive compensation than fi rm-speci fic position or power. Our results have an important implication for recently introduced CEO-employee pay ratio regulation in the U.S market which uses firm-specifi c information that is attributed to power and position. Our results suggest that executive compensation is beyond their power and position and regulators should consider even CEO labor market forces.

Keywords: CEO compensation, CEO-chairman

JEL Classification: G38, L25

Suggested Citation

Marisetty, Vijaya B. and Venugopal, Buvaneshwaran, Position, Power and Demand for CEOs: Understanding Executive Compensation in the U.S Market (June 8, 2014). Available at SSRN: https://ssrn.com/abstract=2447478 or http://dx.doi.org/10.2139/ssrn.2447478

Vijaya B. Marisetty (Contact Author)

RMIT University ( email )

Business
Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

Financial Research Network (FIRN)

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

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

Buvaneshwaran Venugopal

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

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