Working Paper: NBER ID: w25391
Authors: Lucas W. Davis; Catherine Hausman
Abstract: In this paper, we examine executive compensation data from 78 major U.S. oil and gas companies over a 24-year period. Perhaps in no other industry are the fortunes of so many executives so dependent on a single global commodity price. We find that a 10% increase in oil prices is associated with a 2% increase in executive compensation. This oil price effect holds for both CEOs and non-CEOs and separately for several different individual components of compensation, including bonuses. We find that the oil price effect is larger in companies with more insiders on the board, and asymmetric, with executive compensation rising with increasing oil prices more than it falls with decreasing oil prices. We then discuss potential mechanisms drawn from the broader existing literature on executive compensation.
Keywords: executive compensation; oil prices; rent extraction; shareholder value
JEL Codes: J33; M12; M52; G34; Q40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Oil Prices (Q31) | Market Value (D46) |
| Market Value (D46) | Executive Compensation (M12) |
| Oil Prices (Q31) | Executive Compensation (M12) |
| Oil Prices (increase) (Q31) | Executive Compensation (increase) (M12) |
| Oil Prices (decrease) (Q31) | Executive Compensation (decrease) (M12) |
| Better Governance Structures (G38) | Oil Price Effect on Executive Pay (M12) |