Working Paper: NBER ID: w23384
Authors: Wolfgang Keller; William W. Olney
Abstract: This paper finds that globalization is contributing to the rapid increase in executive compensation over the last few decades. Employing comprehensive data on top executives at major U.S. companies, we show that their compensation is increasing with exports and foreign direct investment, 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 market 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, these results indicate that globalization has played a more central role in the rapid growth of executive compensation and U.S. inequality than previously thought.
Keywords: Globalization; Executive Compensation; Inequality
JEL Codes: F14; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Globalization (exports) (F69) | Executive Compensation (M12) |
| 10% exogenous export shock (F41) | 3% increase in executive compensation (M12) |
| Export shocks (C59) | Higher pay for newly hired executives (M12) |
| Export shocks (C59) | Discretionary compensation (bonuses) (J33) |
| Poor corporate governance (G38) | Stronger impact of export shocks on executive pay (F69) |
| Positive export shocks (F14) | Higher executive pay than negative shocks (M12) |