Pay to Performance: How Has Executive Compensation Changed over the Past Seven Decades?

The American (Washington, DC), September-October 2008 | Go to article overview

Pay to Performance: How Has Executive Compensation Changed over the Past Seven Decades?


Everyone agrees that CEO pay has ballooned since the early 1980s. Too often, however, the debate over executive compensation lacks any real historical perspective. Economists Carola Frydman of MIT's Sloan School of Management and Raven E. Saks of the Federal Reserve set out to remedy that. After analyzing a full range of data on CEO pay from 1936 to 2005, they reached some surprising conclusions.

For starters, "executive compensation was remarkably flat from the end of World War II to the mid-1970s, a time in which firms grew rapidly. This stability contrasts sharply with the evidence from the 1980s to the present, when executive pay and firms expanded at almost the same rate." Frydman and Saks also report that "stock option grants have been an important part of the compensation package since the 1950s." (To be sure, "the value of option grants was low prior to the 1980s.")

[ILLUSTRATION OMITTED]

What about managerial incentives? …

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Pay to Performance: How Has Executive Compensation Changed over the Past Seven Decades?
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