Globalization and Executive Compensation

77 Pages Posted: 26 Nov 2017

See all articles by Wolfgang Keller

Wolfgang Keller

University of Colorado; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

William W. Olney

Williams College - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: October 23, 2017

Abstract

This paper identifies globalization as a factor behind the rapid increase in executive compensation and inequality over the last few decades. Employing comprehensive data on top executives at major U.S. companies, we show that compensation is higher at more global firms. We find that pay responds not only to firm size and technology but also to exports conditional on other firm characteristics. Export shocks that are not related to the executive’s talent and actions also increase executive compensation, indicating that globalization is influencing compensation through pay-for-non-performance. Furthermore, this effect is asymmetric, with executive compensation increasing due to positive export shocks but not decreasing due to negative shocks. Finally, export shocks primarily affect discretionary forms of compensation of more powerful executives at firms with poor corporate governance, as one would expect if globalization has enhanced rent-capture opportunities. Overall, these results indicate that globalization has played a more central role in the rapid growth of executive compensation and U.S. inequality than previously thought, and that both higher returns to top talent and rent-capture are important parts of this story.

Keywords: Inequality, Executive Compensation, Globalization, Exports

JEL Classification: F160, F140, F660, M120, J310

Suggested Citation

Keller, Wolfgang and Olney, William W., Globalization and Executive Compensation (October 23, 2017). CESifo Working Paper Series No. 6701. Available at SSRN: https://ssrn.com/abstract=3075762

Wolfgang Keller (Contact Author)

University of Colorado ( email )

Department of Economics
PO Box 256
Boulder, CO 80309
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

William W. Olney

Williams College - Department of Economics ( email )

Fernald House
Williamstown, MA 01267
United States

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