DP12026 Globalization and Executive Compensation

Author(s): Wolfgang Keller, Will Olney
Publication Date: May 2017
Date Revised: February 2018
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: cepr.org/active/publications/discussion_papers/dp.php?dpno=12026

Employing comprehensive data on top executives at major U.S. companies, we show that their compensation is increasing with exports, as well as firm size and technology. Exogenous export shocks unrelated to managerial decisions also increase executive compensation, and there is little evidence that this is due to increasing returns to talent. We do find that export shocks primarily affect discretionary forms of compensation of more powerful executives at firms with poor corporate governance, as one would expect if globalization has enhanced rent-capture opportunities. Overall, globalization has been more important for the rapid growth of executive compensation and U.S. inequality than previously thought, with rent-capture playing a role.