Tuesday, January 31st, 2012 10:42 am

Executive Pay

Question A:

The typical chief executive officer of a publicly traded corporation in the U.S. is paid more than his or her marginal contribution to the firm's value.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question B:

Mandating that U.S. publicly listed corporations must allow shareholders to cast a non-binding vote on executive compensation was a good idea. 

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question A Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Agree 4
CEOs received substantial rents, partly because pay is set by negotiation and with weak oversight. But bad CEO can do huge damage to a firm.
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Agree 2
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Uncertain 3
Bio/Vote History
         
Autor David Autor MIT Uncertain 3
Bio/Vote History
         
Baicker Katherine Baicker Harvard Did Not Answer
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Agree 7
Bio/Vote History
         
Chetty Raj Chetty Harvard Uncertain 5
Bio/Vote History
         
Chevalier Judith Chevalier Yale Uncertain 8
I am fairly confident that the literature is not conclusive on this for the "typical" CEO.
Bio/Vote History
         
Currie Janet Currie Princeton Agree 6
Bio/Vote History
         
Cutler David Cutler Harvard Agree 7
Bio/Vote History
         
Deaton Angus Deaton Princeton Agree 4
Bio/Vote History
         
Duffie Darrell Duffie Stanford Did Not Answer
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Did Not Answer
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Uncertain 1
Bio/Vote History
         
Fair Ray Fair Yale Uncertain 5
Hard to test this.
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Agree 3
Big discrepancy between CEO compensation and long-term shareholder returns.
Bio/Vote History
         
Goldin Claudia Goldin Harvard Agree 3
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Did Not Answer
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Uncertain 3
There are reasons to believe CEO wages = marginal product & to think they are paid more, but I'm unaware of any credible empirical evidence
Bio/Vote History
         
Hall Robert Hall Stanford Uncertain 3
Bio/Vote History
         
Holmström Bengt Holmström MIT Disagree 4
Very hard to measure MP of CEO. Harder still to assess MP of alternatives to CEO. So CEO mkt not competitive in normal sense.
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Uncertain 8
This depends on how the CEO adds value--as a % increase on the firm's profit base or as an absolute amt. If the former, no is more likely.
-see background information here
Bio/Vote History
         
Judd Kenneth Judd Stanford No Opinion
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Disagree 3
Commonly asserted but it is very hard to tell. The fact that CEO pay fell during the 2000s is not widely known.
-see background information here
Bio/Vote History
         
Klenow Pete Klenow Stanford Uncertain 3 Bio/Vote History
         
Lazear Edward Lazear Stanford Disagree 6
Obviously, there are abuses, but the exec. market is reasonably competitive. Some contribute far more to shareholder value than their pay.
Bio/Vote History
         
Levin Jonathan Levin Stanford Did Not Answer
Bio/Vote History
         
Maskin Eric Maskin Harvard No Opinion
Bio/Vote History
         
Nordhaus William Nordhaus Yale Agree 7
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Uncertain 2
Bio/Vote History
         
Rouse Cecilia Rouse Princeton No Opinion
I do not know enough about the empirical evidence to weigh in.
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Agree 6
US CEO current pay much higher than in other countries and than in the past suggesting over-pricing
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Agree 7
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Uncertain 4
While trends in CEO pay may suggest this, I know of no hard evidence, particularly none that bears on the "typical" US corporation.
Bio/Vote History
         
Shin Hyun Song Shin Princeton Agree 6
Bio/Vote History
         
Stock James Stock Harvard Did Not Answer
Bio/Vote History
         
Stokey Nancy Stokey Chicago No Opinion
Bio/Vote History
         
Thaler Richard Thaler Chicago Agree 4
2 Reasons: 1. Winner's curse. 2 asymetric payoffs (CEO wins when things go well and does not suffer when things go sour. Combo = overpay.
Bio/Vote History
         
Udry Christopher Udry Yale Did Not Answer
Bio/Vote History
         
Zingales Luigi Zingales Chicago Uncertain 3
If you had asked the question the other way (we know that they are paid their marginal valuation) I would have strongly diagreed.
Bio/Vote History
         

Question B Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Agree 4
Yes, but not sufficient given that disperse shareholders may not have sufficient incentives to monitor performance.
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Agree 2
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Agree 3
Bio/Vote History
         
Autor David Autor MIT Disagree 6
I weakly disagree. I suspect that this requirement is ineffective -- so it silences some critics without solving any agency problems.
Bio/Vote History
         
Baicker Katherine Baicker Harvard Did Not Answer
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Agree 7
Bio/Vote History
         
Chetty Raj Chetty Harvard Agree 4
Bio/Vote History
         
Chevalier Judith Chevalier Yale Agree 9
I don't think this policy will do much though their have been a few high profile institution-led No votes on these resolutions.
Bio/Vote History
         
Currie Janet Currie Princeton Agree 6
Bio/Vote History
         
Cutler David Cutler Harvard Agree 6
I don't know if it affected pay, but shareholders should have the right to express some view on this.
Bio/Vote History
         
Deaton Angus Deaton Princeton Agree 2
Bio/Vote History
         
Duffie Darrell Duffie Stanford Did Not Answer
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Did Not Answer
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Uncertain 1
Bio/Vote History
         
Fair Ray Fair Yale Agree 5
Seems to have had little effect so far. Gives stockholders potentially more power at probably low costs of administering it.
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Uncertain 1
"Non-binding" means the mandate has no teeth
Bio/Vote History
         
Goldin Claudia Goldin Harvard Agree 3
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Did Not Answer
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Agree 8
Difficult to see harm but there is plenty of evidence that more sunshine can improve firm performance. See below link for an example
-see background information here
Bio/Vote History
         
Hall Robert Hall Stanford Uncertain 3
Ex ante, giving management a significant stake in a company has its logic, so cutting the payoff ex post may be a problem.
Bio/Vote History
         
Holmström Bengt Holmström MIT Uncertain 4
Direct shareholder intervention has benefits as well as costs. Costs much underappreciated in current climate. Still, some oversight needed.
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Uncertain 10
The vote is good for governance, but mandating it is not. If you don't like how executives are paid, sell the shares.
Bio/Vote History
         
Judd Kenneth Judd Stanford No Opinion
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Uncertain 5
We know that it does not seemed to have changed outcomes much so far. Does take up some resources, but the threat might wind up being ok.
Bio/Vote History
         
Klenow Pete Klenow Stanford Agree 3
Bio/Vote History
         
Lazear Edward Lazear Stanford Disagree 8
Mandates are not necessary. Potential shareholders do not have to own shares in companies whose corp gov is not to their liking.
Bio/Vote History
         
Levin Jonathan Levin Stanford Did Not Answer
Bio/Vote History
         
Maskin Eric Maskin Harvard No Opinion
Bio/Vote History
         
Nordhaus William Nordhaus Yale Agree 5
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Agree 3
Bio/Vote History
         
Rouse Cecilia Rouse Princeton No Opinion
Sounds like a good idea in theory, but I do not know enough about implementation to weigh in.
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Uncertain 4
Unlikely to have a strong impact
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Agree 4
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Disagree 7
It is hard to see how a non-binding vote by generally uninformed shareholders is likely to have benefits exceeding its coss.
Bio/Vote History
         
Shin Hyun Song Shin Princeton Agree 8
Bio/Vote History
         
Stock James Stock Harvard Did Not Answer
Bio/Vote History
         
Stokey Nancy Stokey Chicago Uncertain 1
Bio/Vote History
         
Thaler Richard Thaler Chicago Agree 6
More transparency is good. Better would be to require disclosure of the process consultants use to set pay. Benchmarking is anit market.
Bio/Vote History
         
Udry Christopher Udry Yale Did Not Answer
Bio/Vote History
         
Zingales Luigi Zingales Chicago Strongly Agree 9
The cost is minimal, while the benefit of transparency and societal pressure against excesses high.
Bio/Vote History
         

10 New Economic Experts join the IGM Panel


For the past two years, our expert panelists have been informing the public about the extent to which economists agree or disagree on important public policy issues. This week, we are delighted to announce that we are expanding the IGM Economic Experts Panel to add ten new distinguished economists. Like our other experts, these new panelists have impeccable qualifications to speak on public policy matters, and their names will be familiar to other economists and the media.

To give the public a broad sense of their views on policy issues, each new expert has responded to a selection of 16 statements that our panel had previously addressed. We chose these 16 statements, which cover a wide range of important policy areas, because the original panelists' responses to them were analyzed in a paper comparing the views of our economic experts with those of the American public. You can find that paper, by Paola Sapienza and Luigi Zingales, here. The paper, along with other analyses of the experts' views, was discussed during the American Economic Association annual meetings, and the video can be found here.

The new panelists' responses to these statements can be seen on their individual voting history pages. Our ten new economic experts are:

Abhijit Banerjee (MIT)
Markus K. Brunnermeier (Princeton)
Liran Einav (Stanford)
Amy Finkelstein (MIT)
Oliver Hart (Harvard)
Hilary Hoynes (Berkeley)
Steven N. Kaplan (Chicago)
Larry Samuelson (Yale)
Carl Shapiro (Berkeley)
Robert Shimer (Chicago)


Please note that, for the 16 previous topics on which these new panelists have voted, we left the charts showing the distribution of responses unchanged. Those charts reflect the responses that our original panelists gave at the time, and we have not altered them to reflect the views of the new experts.

We have also taken this opportunity to ask our original panelists whether they would vote differently on any of the statements we have asked about in the past. Several experts chose to highlight statements to which they would currently respond differently. In such cases, you will see this "revote" below the panelist's original vote. We think you will enjoy seeing examples of statements on which some experts have reconsidered.

As with the 16 previous statements voted on by new panelists, these "revote" responses are not reflected in the chart that we display showing the distribution of views for that topic: all the charts for previous questions reflect the distribution of views that the experts expressed when the statement was originally posed.

About the IGM Economic Experts Panel

This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President's Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.

Finally, it is important to explain one aspect of our voting process. In some instances a panelist may neither agree nor disagree with a statement, and there can be two very different reasons for this. One case occurs when an economist is an expert on a topic and yet sees the evidence on the exact claim at hand as ambiguous. In such cases our panelists vote "uncertain". A second case relates to statements on topics so far removed from the economist's expertise that he or she feels unqualified to vote. In this case, our panelists vote "no opinion".

The Economic Experts Panel questions are emailed individually to the members of the panel, and each responds electronically at his or her convenience. Panelists may consult whatever resources they like before answering.

Members of the public are free to suggest questions (see link below), and the panelists suggest many themselves. Members of the IGM faculty are responsible for deciding the final version of each week’s question. We usually send a draft of the question to the panel in advance, and invite them to point out problems with the wording if they see any. In response, we typically receive a handful of suggested clarifications from individual experts. This process helps us to spot inconsistencies, and to reduce vagueness or problems of interpretation.

The panel data are copyrighted by the Initiative on Global Markets and are being analyzed for an article to appear in a leading peer-reviewed journal.

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