Brayden
Tyler Cowen has an interesting NY Times column dealing with executive compensation. He details the findings of a new paper by Xavier Gabaix and Augustin Landier addressing the relationship between CEO compensation and the market capitalization of the firm. Essentially, they show that the two grow in tandem. Executive compensation has increased six-fold over the last twenty years, and the average market value of firms has increased by the same proportion. Cross-segment differences in executive compensation can also be explained by segment-level value increases.
So is this a refutation of the overpaid executive thesis? Not exactly. Their findings also indicate that among the top 250 firms, differences in financial performance cannot explain variation in executive compensation, and it is among these firms that you see the highest level of compensation.
The two also find that the best chief executives do not seem to have much more talent than other…
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