Lucian Bebchuk of Harvard Law School and Yaniv Grinstein of Cornell University's Johnson School of Management found that top five executives at public companies received $92 billion in total compensation from 2001 to 2003, amounting to 10.3 percent of their firms' total net income. The ratio was more than double the 4.8 percent from 1993 to 1995, the authors said. (
Houston Chronicle.)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=648682
ReplyDeleteThe Growth of U.S. Executive Pay
LUCIAN ARYE BEBCHUK
Harvard University
YANIV GRINSTEIN
Cornell University
Abstract:
This paper examines both empirically and theoretically the growth of U.S. executive pay during the period 1993-2003. During this period, pay has grown much beyond the increase that could be explained by changes in firm size, performance and industry classification. Had the relationship of compensation to size, performance and industry classification remained the same in 2003 as it was in 1993, mean compensation in 2003 would have been only about half of its actual size. During the 1993-2003 period, equity-based compensation has increased considerably in both new economy and old economy firms, but this growth has not been accompanied by a substitution effect, i.e., a reduction in non-equity compensation. The aggregate compensation paid by public companies to their top-five executives during the considered period has added up to about $290 billion, and the ratio of aggregate top-five compensation to profits increased from 4.8% in 1993-1995 to 10.3% in 2001-2003. After presenting evidence about the growth of pay, we discuss alternative explanations for it. We examine how this growth could be explained under either the arm’s length bargaining model of executive compensation or the managerial power model. Among other things, we discuss the relevance of the parallel rise in market capitalizations and in the use of equity-based compensation.
Anne
I carefully read the article but I am not sure this is a cause for concern. True, executive compensation did not dip when stock values did - but neither did compensation for most employees. If we accept (as I think is likely) that most CEOs will forever be paid more than their employees (rank hath its priviledge), then there is a lower bound on how low can exec pay decline. Also, executives are people as well; having their pay decline is a sure way to keep them unhappy and looking for a more stable job.
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