Political Constraints on Executive Compensation: Evidence from the Electric Utility Industry

RAND J. OF ECONOMICS, Vol. 26 No. 1

Posted: 3 Jul 1998

See all articles by Paul L. Joskow

Paul L. Joskow

Alfred P. Sloan Foundation; Massachusetts Institute of Technology (MIT) - Department of Economics

Nancy L. Rose

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Catherine D. Wolfram

University of California, Berkeley - Economic Analysis & Policy Group; National Bureau of Economic Research (NBER)

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Abstract

This study explores the effect of regulatory and political constraints on the level of CEO compensation for 87 state-regulated electric utilities during 1978-1990. The results suggest that political pressures may constrain top executive pay levels in this industry. First, CEOs of firms operating in regulatory environments characterized by investment banks as relatively "proconsumer" receive lower compensation than do CEOs of firms in environments ranked as more friendly to investors. Second, CEO pay is lower for utilities with relatively high or rising rates, or a higher proportion of industrial customers. Finally, attributes of the commission appointment and tenure rules affect CEO compensation in ways consistent with the political constraint hypothesis.

JEL Classification: J33

Suggested Citation

Joskow, Paul L. and Rose, Nancy L. and Wolfram, Catherine D., Political Constraints on Executive Compensation: Evidence from the Electric Utility Industry. RAND J. OF ECONOMICS, Vol. 26 No. 1, Available at SSRN: https://ssrn.com/abstract=7208

Paul L. Joskow

Alfred P. Sloan Foundation ( email )

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Nancy L. Rose

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Catherine D. Wolfram (Contact Author)

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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