Executive Compensation in a Matching Model

Speaker: Douglas Dejong, University of Iowa

Organized by: Department of Accounting

Abstract: In this paper we empirically revisit the question of the relative importance of returns to firm specific tenure and to general labor market experience in the market for executives. We do so by exploiting a new rich matched employer-employee dataset on executive careers. We shed light on the importance of explicitly accounting for an executive's firm-to-firm and job-to-job mobility, within and across firms, over the course of the executive's career in order to accurately measure the magnitude of each type of returns. Treating the allocation of firm value among executives and other stakeholders as a standard joint consumption problem, we prove that a measure of the implied value sharing rule, as embedded in the observed total compensation of an executive, can be recovered.