CEO Talent: A Dime a Dozen, or Worth Its Weight in Gold?

Abstract

Governance experts have vigorously debated the appropriateness of CEO compensation. And yet, very little effort has been made to understand the size, quality, and efficiency of the labor market for CEO talent, which is a key determinant of pay. In this Closer Look, we review data collected from the directors of the largest 250 companies in the U.S. that suggests that the labor market for outstanding CEO talent is significantly tighter and more competitive than many governance experts realize.

We ask:

• Why hasn’t more attention been paid to the size and quality of the CEO labor market? • What factors limit this market? • How does the size of the labor market influence compensation, performance evaluation, succession planning, and talent development? • How does the size of the CEO labor market vary with company size?

The Stanford Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance and executive leadership. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the books Corporate Governance Matters and A Real Look at Real World Corporate Governance.

Keywords: CEO Labor Market, CEO Recruitment, CEO Succession Planning, Internal Talent Development, Board of Directors, CEO Compensation, Corporate Governance Research

JEL Classification: J33, G34