CEO Bargaining Power and Compensation

Abstract

I provide causal empirical evidence of how changes in the bargaining power of CEOs affect CEO compensation. Using the staggered rejections of previously adopted Inevitable Disclosure Doctrine (IDD) by US state courts to capture an exogenous increase in CEOs’ bargaining power, I find that the IDD rejection results in higher levels of CEO compensation. The effect is strongest in firms whose CEO-board dynamics is significantly influenced by the IDD – firms whose CEOs face greatest job mobility shock and firms that can effectively use the IDD decision as a bargaining tool against their CEOs.

Keywords: CEO Compensation, CEO Bargaining Power, CEO-Board Dynamics

JEL Classification: G34, G38, J33