CEO Pay, Incentives and GovernanceBrian Bell and John Van Reenen

Discussant: Alex Bryson

NIESR Performance Pay Workshop, 26th June 2014

Why Does All of This Matter?• Efficiency– Are we getting the right people to the top and are we paying

them in a way that gets the best out of them?

• Equity– Total share of all earned income going to the top

• Policy– If we are worried about efficiency or equity what should we

do• Government• Firms

Difficult Terrain• Technically tricky– Deferred compensation makes it hard to disentangle which

performance the CEO is being compensated for– Separating “luck” from the CEO causal effect

• So inference is tricky– How sure can we be about what we have found

• Just as well we’ve got Brian– Banker– Economist– Pragmatist

Focus on governance• Yes elasticities have risen• Much of it appears to be luck• Hard to tie pay to CEO performance with LTIPs• But governance can help

– Institutional investors’ ability/incentives to monitor• But is there anything else we can do?

– China: CEO sits on own Compensation Committee, gets premium– Non-executives?– Shareholder right to vote may make things worse– Blunt instruments may make things worse

• Caps on bonus as % salary?

The Labour Market for CEOs and The Rest• What lies behind managerial power?

– How scarce are these skills?• CEO merry-go-round

• How global are CEO markets?– How global should they be?

• Tournaments – do they work?

• Interesting to see how little other workers share in firm fortunes– How much should we care?– After all they are exposed enough (wages, employment)

• And have limited ability to change things