The PRI Academic Seminar Series invites leading ESG experts to present their research to academic scholars and investors.

The aim of the series is to:

  • give world thought leaders in responsible investing the opportunity to present their work and obtain valuable feedback
  • provide an opportunity to junior scholars to network with the speaker and obtain career advice
  • be more inclusive and strengthen our global PRI Academic Network community throughout the year

Alex Edmans,  8 October 2021

Paper: CEO Compensation: Evidence From the Field

Abstract: We survey directors and investors on the objectives, constraints, and determinants of CEO pay. 67% of directors would sacrifice shareholder value to avoid controversy on CEO pay, implying they face significant constraints other than participation and incentive compatibility. These constraints lead to lower pay levels and more one-size-fits-all structures. Shareholders are the main source of constraints, suggesting directors and investors disagree on how to maximize value. Respondents view intrinsic motivation and reputation as stronger motivators than incentive pay. They believe pay matters to CEOs not to finance consumption, but because it affects perceptions of fairness. The need to fairly recognize the CEO’s contribution explains why flow pay responds to performance, even though CEOs’ equity holdings already provide substantial consumption incentives, and why peer firm pay matters beyond retention concerns. Fairness also matters to investors, with shareholder returns an important reference point. This causes CEO pay to be affected by external risks, in contrast to optimal risk sharing.

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About Alex Edmans

Alex Edmans is Professor of Finance at London Business School and Academic Director of the Centre for Corporate Governance.

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