Political Calculations: What Drives CEO Pay?

16 Dec 2014 Leave a comment

by Jim Rose in applied price theory, human capital, occupational choice Tags: ,

Xavier Gabaix and Augustin Landier found back in 2008 that what a major company’s CEO earns is directly proportional to the size of the firm that they are responsible for running.

The chart below shows the correlation between firm size and CEO compensation for the top 500 public firms in 2010.

Executive Compensation vs Firm Size for Top 500 Firms, 2010

Executive compensation closely track the evolution of average firm value. During 2007 – 2009, firm value decreased by 17%, and CEO pay by 28%. During 2009-2011, firm value increased by 19% and CEO pay by 22%.

Executive Compensation and Firm Size for Top 500 Firms, 1992-2011

via Political Calculations: What Drives CEO Pay?.

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