Today I did read a very interesting article about a recent study about CEO pay. The authors are Xavier Gabaix (Pinceton) and Augustin Landier (New York University). They developed this hypothesis in order to research CEO pay: Managers are different in order to increase the value of a firm. In particular in large firms â€above average managersâ€ are able to achieve a lot, since the total increase in value is larger compared to medium sized companies. Hence large firms try to attract the best manager with high salaries. The result: On average the value of the firm and managersâ€™ salary correlate 1 to 1. The authors discovered one paradox: Companies belief that the differences between managers in terms of talent are very low. Otherwise they would pay much more for the best.
October 23, 2006
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