Executive Compensation For The Top Five Highest Paid Managers

1529 WordsFeb 6, 20177 Pages
Executive Compensation in America Jay G. Maier Labor Markets & Inequality Professor Mitra January 17, 2017 Abstract This investigation studies both theoretical and empirical evidence on the trend of rapidly increasing executive compensation in America. Over the course of three decades, executive compensation for the top five highest paid managers of publicly-traded firms has increased so much that the parallel growth in the size of the standard American business, the parallel increase in complexity of the standard American business following the Age of Information or computing and its ensuing technologies and the globalization of the American economy, and the parallel heightened corporate governance of the standard…show more content…
Literature Review First, Classical economists attribute the rise in executive compensation to the growing size of modern businesses. Considering managerial talent has a multiplicative effect by firm size, it is no surprise that managerial talent is more valuable in higher market capitalization firms and thus that larger firms must then offer increased compensation in order to secure the top managers in an efficient labor market, (Rosen). And, since minute increments in managerial talent are multiplied given the sheer scope of the executives’ control resulting in huge increases in firm value according to Frydman, an efficient labor market would have it that incremental changes in managerial talent require similarly much more substantial jumps in compensation. As such, the 500% increase in average executive compensation since 1980 can be fully explained by the 500% increase in the average market capitalization over the period, though the distribution of compensation has spread, in no small part due to the precision with which managerial talent can be discreetly measured in the age of information, (Gabaix & Landier). In fact, Gabaix and Landier found that: “the growth in the size of the typical firm [as] measured by the market value of the
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