DP12026 Globalization and Executive Compensation

Author(s): Wolfgang Keller, Will Olney
Publication Date: May 2017
Keyword(s): corporate governance, Distributional Effects, Executive compensation, Globalization, inequality
JEL(s): F14, F16, F66, J31, M12
Programme Areas: Labour Economics, Financial Economics, International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12026

This paper examines the role of globalization in the rapid increase in top incomes. Using a comprehensive data set of thousands of executives at major U.S. firms from 1993-2013, we find that exports, along with technology and firm size, have contributed to rising executive compensation. Isolating changes in exports that are unrelated to the executive's talent and actions, we show that globalization has affected executive pay not only through market channels but also through non-market channels. Furthermore, exogenous export shocks raise executive compensation mostly through bonus payments in poor-governance settings, in line with the hypothesis that globalization has enhanced the executive's rent capture opportunities. Overall, these results indicate that globalization has played a more central role in the rapid growth of executive compensation and U.S. inequality than previously thought, and that rent capture is an important part of this story.