DP6222 Does Globalization Create Superstars?

Author(s): Hans Gersbach, Armin Schmutzler
Publication Date: March 2007
Keyword(s): Globalization, Manager Remuneration, Superstars
JEL(s): D43, F15, J31, L13
Programme Areas: Labour Economics, Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=6222

To examine the impact of globalization on managerial compensation, we consider a matching model where a number of firms compete both in the product market and in the managerial market. We show that globalization, that is, the simultaneous integration of product markets and managerial pools, leads to an increase in the heterogeneity of managerial salaries. Typically, while the most able managers obtain a wage increase, less able managers are faced with a reduction in wages. Hence our model can explain the increasing heterogeneity of CEO compensation that has been observed in the last few decades.