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Learning from the Past: Trends in Executive Compensation over the Twentieth Century

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  • Carola Frydman

Abstract

In recent years, a large academic debate has tried to explain the rapid rise in CEO pay experienced over the past three decades. In this article, I review the main proposed theories, which span views of compensation as the result of a competitive labor market for executives to theories based on excess of managerial power. Some of these hypotheses have found support in cross-sectional evidence, but it has proven more difficult to determine which factors have caused the observed changes in pay over time. An alternative strategy is to evaluate the fit of plausible explanations out of sample by contrasting them with the evolution in executive pay and the market for managers during earlier time periods. A case study of General Electric suggests that evidence for earlier decades can speak to the recent trends and reveals the limitations of current explanations to address the long-run data.

Suggested Citation

  • Carola Frydman, 2008. "Learning from the Past: Trends in Executive Compensation over the Twentieth Century," CESifo Working Paper Series 2460, CESifo.
    • Handle: RePEc:ces:ceswps:_2460
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    1. Hadley, Brandy, 2019. "Executive compensation and political sensitivity: Evidence from government contractors," Journal of Corporate Finance, Elsevier, vol. 59(C), pages 276-301.

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    More about this item

    Keywords

    executive compensation; managerial incentives; corporate governance; market for managers;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • N32 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - U.S.; Canada: 1913-

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