CEO Compensation: Evidence From the Field

80 Pages Posted: 30 Jun 2021 Last revised: 13 Oct 2023

See all articles by Alex Edmans

Alex Edmans

London Business School - Institute of Finance and Accounting; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Tom Gosling

London Business School

Dirk Jenter

London School of Economics & Political Science (LSE) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

Date Written: August 3, 2023

Abstract

We survey directors and investors on the objectives, constraints, and determinants of CEO pay. We find that directors face constraints beyond participation and incentives, and that pay matters not to finance consumption but to address CEOs’ fairness concerns. 67% of directors would sacrifice shareholder value to avoid controversy, leading to lower levels and one-size-fits-all structures. Shareholders are the main source of constraints, suggesting directors and investors disagree on how to maximize value. Intrinsic motivation and reputation are seen as stronger motivators than incentive pay. Even with strong portfolio incentives, flow pay responds to performance to fairly recognize the CEO’s contribution.

Keywords: Executive Compensation, Contract Theory, CEO Incentives, Fairness, Survey

JEL Classification: G34, G38, M12, M52

Suggested Citation

Edmans, Alex and Gosling, Tom and Jenter, Dirk, CEO Compensation: Evidence From the Field (August 3, 2023). European Corporate Governance Institute – Finance Working Paper No. 771/2021, Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3877391 or http://dx.doi.org/10.2139/ssrn.3877391

Alex Edmans (Contact Author)

London Business School - Institute of Finance and Accounting ( email )

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

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Tom Gosling

London Business School ( email )

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

HOME PAGE: http://www.london.edu

Dirk Jenter

London School of Economics & Political Science (LSE) - Department of Finance ( email )

United Kingdom

HOME PAGE: http://personal.lse.ac.uk/jenter/

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

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