Are you aware of which skills are prime in today’s CEO market? Do you know how your skills are measured? Which skillsets are most likely to garner bigger compensation packages?
Excerpt: …… we show that boards’ compensation decisions reward several reputational, career, and educational credentials of CEOs using a panel of S&P 1,500 firms between 1993 and 2005.
Our study is motivated by anecdotal accounts of executive search consultants, recent empirical evidence, and a growing theoretical literature that point to an increased importance of the labor market for CEOs over the last two decades. The central message of these studies is that there are fundamental differences in CEOs’ skill sets and that these differences are an increasingly important determinant of CEO pay. However, we still have scant direct evidence on whether differences in CEO skills matter for their pay. Even less is known about which CEO skills actually carry a premium in CEO pay and whether skill pay premia can help to explain key stylized facts of CEO pay, such as its dramatic rising trend and the increasing gap between the most and the least paid CEOs. In order to fill this gap, we use new hand-collected biographical data on a large sample of CEOs to examine whether there is a credentials premium in CEO pay—i.e., do firms make inferences about otherwise difficult to observe CEO skills from readily available facts that can be gathered from CEO resumes and professional career track records? If so, is the relation between CEO pay and credentials consistent with market-based theories?