CEO wage dynamics: Estimates from a learning model

The level of Chief Executive Officer (CEO) pay responds asymmetrically to good and bad news about the CEO's ability. The average CEO captures approximately half of the surpluses from good news, implying CEOs and shareholders have roughly equal bargaining power. In contrast, the average CEO bears none of the negative surplus from bad news, implying CEOs have downward rigid pay. These estimates are consistent with the optimal contracting benchmark of Harris and Hölmstrom (1982) and do not appear to be driven by weak governance. Risk-averse CEOs accept significantly lower compensation in return for the insurance provided by downward rigid pay.

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Year of publication:	2013
Authors:	Taylor, Lucian A.
Published in:	Journal of Financial Economics. - Elsevier, ISSN 0304-405X. - Vol. 108.2013, 1, p. 79-98
Publisher:	Elsevier
Subject:	CEO \| Compensation \| Learning \| Dynamics \| Bargaining \| SMM

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Type of publication:	Article
Classification:	D83 - Search, Learning, Information and Knowledge ; G34 - Mergers; Acquisitions; Restructuring; Corporate Governance ; J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc ; J33 - Compensation Packages; Payment Methods ; J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011039267