"No one perspective" can explain trends in executive compensation, and "a narrow attachment to one perspective will distort rather than inform" our views of pay, according to a new National Bureau of Economic Research Working Paper authored by Alex Edmans, Xavier Gabaix and Dirk Jenter. The paper, which aims to provide a comprehensive review of the existing literature on executive pay, notes that the general increase in CEO pay may in fact be attributed to a combination of factors including:
- Shareholder desire to maximize firm value;
- Executive ability to negotiate; and
- The influence of external legislative and accounting policies.
- Disclosure (it has potential, but also has mixed results for improving pay for performance);
- Say on pay (the authors believe nonbinding say on pay has been beneficial, but caution on binding say on pay);
- Dodd-Frank pay ratio (it "is likely to direct public anger at the wrong firms and have a number of unintended consequences."); and,
- Restrictions on specific forms of executive pay ("As a means to restrain the level of executive pay, such restrictions are bound to fail.")
The paper concludes that further study in the area of private company CEO pay would be valuable, since private firms are often "closer to the shareholder value benchmark" given their more highly concentrated shareholders, and could help assess whether a more direct ability on the part of shareholders to monitor pay results in lowered levels of incentive pay for CEOs.