Executive Compensation: A Survey of Theory and Evidence
By Alex Edmans, Xavier Gabaix, Dirk Jenter. Social Science Research Network, 2017
351 citations recorded by the source corpus.
This paper reviews the theoretical and empirical literature on executive compensation. We start by presenting data on the level of CEO and other top executive pay over time and across firms, the changing composition of pay; and the strength of executive incentives. We compare pay in U.S. public firms to private and non-U.S. firms. We then critically analyze three non-exclusive explanations for what drives executive pay - shareholder value maximization by boards, rent extraction by executives, and institutional factors such as regulation, taxation, and accounting policy. We confront each hypothesis with the evidence. While shareholder value maximization is consistent with many practices that initially seem inefficient, no single explanation can account for all facts and historical trends; we highlight major gaps for future research. We discuss evidence on the effects of executive pay, highlighting recent identification strategies, and suggest policy implications grounded in theoretical and empirical research. Our survey has two main goals. First, we aim to tightly link the theoretical literature to the empirical evidence, and combine the insights contributed by all three views on the drivers of pay. Second, we aim to provide a user-friendly guide to executive compensation, presenting shareholder value theories using a simple unifying model, and discussing the challenges and methodological issues with empirical research.
Subfields: Accounting, Strategy and Management
View Paper: https://www.semanticscholar.org/paper/fa96e956d3c623dbe1906212aa74b8f17dcc8781
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Citations in the corpus
- Blockholders: A Survey of Theory and Evidence (2017, neutral): “The literature on inside blockholders is covered by 5 reviews of CEO compensation, such as Frydman and Jenter (2010), Murphy (2013), Edmans and Gabaix (2016), and Edmans, Gabaix, and Jenter (2017).”
- Threshold Regression With a Threshold Boundary (2020, background): “4) of Kim and Pollard (1990). In this normalization, we do not need to know which component of (q; z0) has a nonzero coe¢ cient but need to estimate one more unknown parameter.”
- Firm Response to Competitive Shocks: Evidence from China’s Minimum Wage Policy (2020, neutral): “The panel regressions in Columns (2)-(3), (5)-(6), and (8)-(9) of Table 2 repeat the same specification in log terms, where the dependent variable is now the log average firm wage growth ∆ ln and the minimum wage change is also expressed in log changes ∆ ln In these and all following regressions”