Executive Pay for Luck: New Evidence over the Last 20 Years

75 Pages Posted: 15 Jan 2020 Last revised: 15 Apr 2020

See all articles by Jung Ho Choi

Jung Ho Choi

Stanford University Graduate School of Business

Brandon Gipper

Stanford University Graduate School of Business

Shawn X. Shi

Stanford Graduate School of Business

Date Written: April 12, 2020

Abstract

Pay for non-performance is among the most prominent arguments of executive rent extraction, especially Bertrand and Mullainathan’s (2001) pay for luck. We revisit their finding over the last two decades, 1997 through 2016. Pay for luck presents in the first decade but declines in the second decade. This decrease is robust to different measures of luck, industry dynamics, and the financial crisis of 2008-9. The structural break in pay for luck associates with transparency-based regulations, such as option expensing and new performance pay disclosures. These regimes plausibly enhance shareholder monitoring, which pushes compensation committees to decrease pay for luck.

Keywords: Corporate Governance, Executive Pay, Regulation

JEL Classification: G38, J33, J38, M12, M41

Suggested Citation

Choi, Jung Ho and Gipper, Brandon and Shi, Shawn, Executive Pay for Luck: New Evidence over the Last 20 Years (April 12, 2020). Stanford University Graduate School of Business Research Paper No. 3509307. Available at SSRN: https://ssrn.com/abstract=3509307 or http://dx.doi.org/10.2139/ssrn.3509307

Jung Ho Choi

Stanford University Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
(650)721-8434 (Phone)

Brandon Gipper (Contact Author)

Stanford University Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
(650)498-4350 (Phone)

Shawn Shi

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
168
Abstract Views
776
rank
190,547
PlumX Metrics