Are Managers Paid for Market Power?
Abstract:
The rapid increase in executive compensation since the late 1980s can be attributed to the rise of firm size in the upper tail of the f irm size distribution. But in that period, market power also increases shar ply. Firm size and market power are determined simultaneously and both affe ct profitability, and hence manager pay. We propose a theory of executive c ompensation that incorporates oligopolistic competition in the product mark et. This theory allows us to decompose and quantify the contribution to man ager pay of firm size and of market power. We find that market power contri butes an average of 45.8%, which has been rising from 38.0% in 1994 to 48.8 % in 2019. Most strikingly, there is significant heterogeneity across manag ers: in 2019, 80.3% of top manager pay was due to market power. We conclude that top managers are hired disproportionately by firms with market power, and they get rewarded for it, increasingly so.
DTSTAMP:20260424T193452Z DTSTART:20231016T023000Z DTEND:20231016T160000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR