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Does the Market for CEO Talent Explain Controversial CEO Pay Practices?

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  • K. J. Martijn Cremers
  • Yaniv Grinstein

Abstract

Benchmarking, pay for luck, and the large compensation packages given to CEOs in recent years are three major controversial compensation practices. We examine the extent to which variation in the market for CEO talent explains these practices. We find that CEO compensation is benchmarked against other firms only in industries where CEO talent is not firm-specific, and that pay for luck is more prevalent there also. These findings are consistent with theories based on the market for CEO talent. However, CEO compensation levels do not depend on whether CEO talent is firm-specific, which seems inconsistent with the talent competition argument.

Suggested Citation

  • K. J. Martijn Cremers & Yaniv Grinstein, 2014. "Does the Market for CEO Talent Explain Controversial CEO Pay Practices?," Review of Finance, European Finance Association, vol. 18(3), pages 921-960.
    • Handle: RePEc:oup:revfin:v:18:y:2014:i:3:p:921-960.
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    File URL: http://hdl.handle.net/10.1093/rof/rft024
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