Matching Premiums in the Executive Labor Market

The Accounting Review, Forthcoming, https://doi.org/10.2308/accr-52393

48 Pages Posted: 11 Jan 2019 Last revised: 12 Mar 2019

See all articles by Mary Ellen Carter

Mary Ellen Carter

Boston College - Department of Accounting

Francesca Franco

London Business School

A. Irem Tuna

London Business School

Date Written: December 20, 2018

Abstract

We study whether executives receive pay premiums for the uncertainty of their match with a new firm. Using changes in executive-firm matches from ExecuComp, we document that executives receive significant attraction premiums when they move to new firms. These premiums vary with proxies that capture potential sources of uncertainty about the quality of the match and are incremental to pay for managerial talent, generalist ability, industry turnover risk, and potential additional costs incurred by the new employer to attract the executive to the firm, such as payments for forfeited equity and relocation costs. Consistent with compensation for uncertainty of fit, we find that the premiums decrease with the executive’s tenure at the new firm, as the uncertainty about the executive-firm match is resolved over time. Our findings raise the possibility that attraction premiums are an additional cost of executive turnover and may contribute to the overall rise in executive pay.

Keywords: Executive Compensation, Human Capital, Pay Premiums, Executive Labor Market, Matching

JEL Classification: J24, J33, M12, M52

Suggested Citation

Carter, Mary Ellen and Franco, Francesca and Tuna, Ayse Irem, Matching Premiums in the Executive Labor Market (December 20, 2018). The Accounting Review, Forthcoming, https://doi.org/10.2308/accr-52393. Available at SSRN: https://ssrn.com/abstract=3304705 or http://dx.doi.org/10.2139/ssrn.3304705

Mary Ellen Carter (Contact Author)

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Francesca Franco

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

Ayse Irem Tuna

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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