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    Earnings distribution, corporate governance and CEO pay

    Guy, Frederick (2005) Earnings distribution, corporate governance and CEO pay. International Review of Applied Economics 19 (1), pp. 51-65. ISSN 0269-2171.


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    We investigate the relationship between earnings differentials and the pay of CEOs of 190 British companies between 1970 and 1990. We find that (i) changes in the differential between the 90th and 50th weekly earnings percentiles for non-manual adult male workers [90:50] explain changes in the level of real CEO salary and bonus in our sample of companies; (ii) changes in this differential also account for changes in the elasticity of CEO pay to firm size; (iii) a broader measure of earnings inequality does far worse than 90:50 at explaining changes in both the level and the firm size elasticity of CEO pay; (iv) fitting the model on data for 1970-1983 and predicting pay levels for the period starting with the widespread adoption of executive share option schemes in 1984, we find a structural break in the relationship between lower management pay differentials and the pay of the CEO. We conclude first that top executive pay prior to 1984 was a stable function of both firm size and earnings differentials lower on the administrative ladder, consistent with a hypothesis advanced by Herbert Simon in 1957; and second that the use of share options from 1984 onward represents not simply a change in the mode of top executive compensation, but a de -linking of the pay of top executives and that of their subordinates.


    Item Type: Article
    Keyword(s) / Subject(s): corporate governance, executives' salaries, industries, management, wage payment systems, Great Britain, earning inequality, executive pay
    School: Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School
    Research Centres and Institutes: Innovation Management Research, Birkbeck Centre for
    Depositing User: Administrator
    Date Deposited: 20 Mar 2007
    Last Modified: 02 Aug 2023 16:47


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