Working Paper: CEPR ID: DP6222
Authors: Hans Gersbach; Armin Schmutzler
Abstract: 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.
Keywords: globalization; manager remuneration; superstars
JEL Codes: D43; F15; J31; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Globalization (F60) | Increased Competition (L13) |
| Increased Competition (L13) | Increased Pay Differential Between High and Low-Quality Managers (J31) |
| Globalization (F60) | Increased Heterogeneity in Managerial Salaries (J31) |
| Increased Competition (L13) | Wage Increases for Most Able Managers (J31) |
| Increased Competition (L13) | Wage Reductions for Less Able Managers (J31) |
| Globalization (F60) | Amplified Wage Spread (J31) |
| Globalization (F60) | Increasing Heterogeneity in CEO Compensation (M12) |