Jakob Munch, University of Copenhagen
Department seminar. Jakob Munch is a Professor at the University of Copenhagen. He will present a paper entitled "Globalization and CEO Pay: Good Managers or Good Luck?", co-authored by Svend Andersen and David Hummels.
Much attention has been given to increasing income shares of top income earners in many advanced economies, an increase partly driven by so-called 'supermanagers', the chief executive officers (CEOs) of the largest firms. What role has globalization, and the attendant increases in scale and complexity, played in this increase? We identify CEOs from matched worker-firm data for Denmark for the period 1995-2012 and construct firm scale and complexity measures related to globalization. We document novel stylized facts and examine whether the rise in CEO compensation can be explained by exogenous changes in firm-level globalization. We find that changes in global exposure that increase firm size strongly increase CEO compensation, both absolutely and relative to other workers, with an especially large effect for bigger firms. Conditional on size, changes in firm complexity measures play little role in affecting compensation, suggesting that managers are being compensated for good luck, and not for doing more demanding jobs. Finally, we show that luck is a two-edged sword, as managers also face a significantly increased chance of being fired in the wake of an adverse global shock. Combining the probability of displacement with the change in pay associated with global shocks enables us to calculate the expected changes in CEO pay in a globalized world.
Host: Manudeep Bhuller