CEO Compensation and Real Estate Prices: Pay for Luck and Responses to Luck

56 Pages Posted: 12 Aug 2015 Last revised: 11 Jan 2018

See all articles by Benjamin Bennett

Benjamin Bennett

Tulane University - A.B. Freeman School of Business

Claudia Custodio

Imperial College London; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Nova School of Business and Economics

Dragana Cvijanovic

Cornell SC Johnson College of Business

Date Written: January 10, 2018

Abstract

We use changes in real estate prices to study the sensitivity of CEO compensation to luck and to responses to luck. Pay for luck can be optimal when CEOs are expected to react to luck. To identify responses to luck we rely on the fact that accounting performance, unlike market performance, only reflects changes to real estate prices if the CEO responds to the real estate shocks. We show that CEO compensation is linked to responses to real estate luck, which can partially explain pay for luck.

Keywords: CEO compensation; pay for luck; real estate shocks

JEL Classification: G34, J31

Suggested Citation

Bennett, Benjamin and Custodio, Claudia and Cvijanovic, Dragana, CEO Compensation and Real Estate Prices: Pay for Luck and Responses to Luck (January 10, 2018). Available at SSRN: https://ssrn.com/abstract=2642346 or http://dx.doi.org/10.2139/ssrn.2642346

Benjamin Bennett

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

HOME PAGE: https://sites.google.com/site/benjaminbennettfinance/home

Claudia Custodio (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal

Dragana Cvijanovic

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

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